The student loan grace period is the time given to you before you’re required to start paying back your student loans. The amount of time given varies depending on the loan you take out. The intent behind the grace period is to give graduates time to find a job and get financially prepared before the first payment is due. Unfortunately, not all student loans have grace periods.
Our guide will answer common questions and explain crucial details you need to know about the student loan grace period.
Does Interest Accrue During the Grace Period?
For most student loans, interest will accrue even during your grace period. Interest does not accrue during the grace period for Federal Perkins loans or subsidized Stafford loans made before July 1, 2012, or after July 1, 2014.
If you have unsubsidized loans or a subsidized Stafford loan made between July 1, 2012, and July 1, 2014, interest will accrue during deferment and grace periods. Unpaid interest is generally capitalized (added to the principal balance) following the grace period.
How Long is a Student Loan Grace Period?
Different loans have different grace periods. For private loans, you should review the specific terms of the loan to find out if you have a grace period and how long it is.
- Federal Stafford loans receive a six-month grace period.
- Federal Perkins loans receive a nine-month grace period and are allowed another six-month grace period after an eligible deferment.
- PLUS loans have no grace period, but you may be eligible for deferment.
When Does the Grace Period Start?
For most federal loans, your grace period begins after you leave college. This includes:
- If you withdraw from school
- If you drop below half-time enrollment
Definitions for half-time enrollment vary by school, so check with your financial aid office if you adjust your class schedule.
Can the Student Loan Grace Period Change?
Certain circumstances may change your grace period, such as:
- Active military duty: If you’re called to active duty for longer than 30 days during your grace period, you’ll receive a six-month grace period when you return from active duty.
- Returning to school: If you re-enroll in school at least half-time during your grace period, you’ll have a full six months to begin repayment once you graduate or drop below half-time enrollment.
- Loan consolidation: Once you consolidate your loans, you lose any remaining grace period. You’ll receive your first bills approximately two months after the new direct consolidation loan is disbursed.
What Happens When the Grace Period Ends?
Repayment starts when your grace period ends. Your loan servicer should provide a loan repayment schedule stating when your first payment is due. The schedule will detail the amount required in your monthly payments. If you need more time to find a job after your grace period ends, you can pursue an unemployment deferment or an income-based repayment plan.
How to Take Advantage of the Grace Period?
One of the best ways to prepare during your grace period is by establishing yourself financially.
- Find employment that will help you make your monthly student loan payments.
- If interest does accrue during your grace period, consider paying the interest before repayment begins. When interest is capitalized at the end of the grace period, interest is charged on the higher principal balance.
- Determine your repayment plan as early as possible. Understanding the details of repayment can save you time and money.
- If you already have a job, start setting aside money for an emergency fund. This will be invaluable when unexpected events happen, and can prevent you from defaulting on your student loan.
How Student Loan Payments Affect Your Credit Score
As with any debt, student loans can affect your credit score positively or negatively. A student loan payment can help you establish credit history, improve the diversity of your accounts and show that you can responsibly manage a loan. However, late payments or defaulting on your loan can hurt your credit.
Keep an eye on your credit report to make sure your payments are correctly reported. Just one misreported late payment can hurt your credit score significantly. If you’re not sure where to start, you can contact Lexington Law firm for a free credit report consultation to get a better idea of where you stand.