When Referring to Student Loans What is a Grace Period
A grace period is one term that’s provided for student loans that allow you to delay payments up to a certain length of time, without penalty. During a grace period no late charges would apply, and the loan would not risk falling into default for missed payments. The grace period allows you time to find financial stability prior to having to make payments on your student loans.
How Long Is My Grace Period?
Your grace period length will be determined by what type of loans you have. You will need to know whether your student loans are federal or private, as well as what type of loans they are and with which lender. Both federal loans and private loans may have a grace period. If your loan has a grace period, you become eligible for it either after graduation or after you leave school or drop below half-time enrollment. Your grace period is also available to you for up to three years after graduating or leaving school, and can be used at any time during those three years.
Grace Period & Interest Accrual By Loan Type
|Loan Type||Grace Period Length||Interest Accrues?|
|Subsidized Direct||6 months||No|
|Unsubsidized Direct||6 months||Yes|
|Subsidized Stafford||6 months||No*|
|Unsubsidized Stafford||6 months||Yes|
|Perkings Loans||9 months||No|
|Parent Plus & Graduate||None||Yes|
|Private Loans||Depends on Loan||Usually, yes.|
*Subsidized Stafford loans taken out between July 1st 2012 and July 1st 2014 will have interest accruing during a grace period. Any other years would not.
Accruing Interest While In Grace
Interest accrues for certain loans while in a grace period, and in others the government subsidizes the loan and pays the interest during a grace period. The table above can help you determine whether your loans would or would not accrue interest. If you are considering applying to use your grace period because of a financial hardship, you may want to consider the revised pay as you earn payment plan(REPAYE). This payment plan will give you a payment based on 10% of your discretionary income, but also does a better job of getting interest forgiveness than a grace period. While enrolled in the REPAYE plan, your first three years of unpaid interest does not accrue, and 50% of your 4th year of unpaid interest.
Your Grace Period Can Be Subject To Change
There are three circumstances which could change your grace period length.
- Military Duty – If you are called to military duty within 30 days of your grace period expiring, you will receive the full 6 months when you return from active duty. So this can extend your grace period for another full 6 months.
- Returning to School – If you return back to school as at least a half-time student prior to the expiration of your grace period, you will be provided an additional 6 months once you graduate or leave school.
- Consolidation – Loan consolidation will early terminate any grace period you have remaining on your student loans and be subject to the grace conditions on the new loan.
It’s worth considering that while a consolidation may terminate your grace period prematurely, you may not need a grace period if selecting an income driven repayment plan under a consolidation. We find that often people use the grace period when they cannot find work and have no income, but in that scenario you may be better off in an income driven repayment plan which can not only provide you with a $0 monthly payment, but that $0 payment would count as an actual payment on your loan to dimish the term and offer forgiveness benefits.
How Does The Grace Period Work With Private Student Loans?
In the world of private student loans, there is no standard for a grace period. Some lenders may offer grace periods for certain products or student loan types they offer, and some may not. If you are applying for a refinance of your student loans and the grace period is something that is important to you, then you will need to double and triple check with the private bank you plan on borrowing from. If making regular on-time payments is an issue for you, or something you think may become a problem in the future, we highly suggest not refinancing federal loans and converting them into private loans or you will lose your income driven repayment plan options.
Other Options Instead of a Grace Period
If your student loans are federal, the government has got your back. As we talked about above, the government has multiple federal student loan repayment plans that are designed around borrowers ability to make their student loan payments. There are a few repayment plans which allow a borrower to make a student loan payment equal to only 10% of their discretionary income, and can even provide for a payment of $0.00/mo. This payment counts as a qualifying payment not only for loan forgiveness but for your loan term. We highly suggest that anyone who is in need of a grace period should also review our repayment plans page and see if any of them could help alleviate the burden of a student loan payment during hard times.
If you are no longer eligible for a grace period, you can consider a deferment of forbearance. Both will help postpone payments so you do not fall into default, but may not be a better option that some of the income driven repayment plans.
Don’t Take The Grace Period If You Don’t Need It
The grace period is designed to give people time to steady their financing before they start having to make payments on their student loans. If you have a stable income right out of college, it’s in your best interest to start paying down the loan as quickly as you can, especially if your grace period accrues interest. Student loans can and do follow people for their whole lives, and the ones that find success with their student loans are the ones who are aggressive about paying them off as fast as possible. We suggest that you not only avoid taking the grace period if you do not need it but paying even more towards the loan to pay down the balance as fast as possible. Student loans have a pretty high-interest rate in today’s market, and they are not something you want to carry around with you for too long, if not necessary.
Some student loans offer a grace period, and its wise to use it if and when needed. That’s why its there for you, after all. It’s also wise to know your other options which may benefit you more than a grace period. That may be paying down the loan as fast as possible, or applying for an income driven repayment plan during hard financial times. Everyone has a different situation and you need to consider your own accordingly. If you want to contact your lender to inquire about your grace period, the government has provided a list of contact numbers.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.