Once you graduate from college, it is not typical for you to have to begin repaying your student loans immediately. Most student loans have a buffer period of time known as a “grace period,” during which you are not obligated to begin your student loan repayment. The lengths of a grace period can differ, from the standard 6 months all the way up to 3 years (if the borrower is serving on active duty in the Armed Forces). Many students are unaware that you do NOT have to wait until your grace period is over to begin making student loan payments. In fact, for some student loans, it is in your best interest to begin making payments as soon as you can to minimize capitalizing interest. If you are considering student loan consolidation, consolidating your student loans before your grace period is over may also be beneficial.
Stafford Student Loans (now called Direct Subsidized and Direct Unsubsidized Loans) have a 6-month grace period after graduation, after you leave school, or after you drop below half-time enrollment. You do have the option to start repaying your loan sooner to avoid interest capitalization. If you have Subsidized Stafford Loans, interest will not accrue while you are in school or during the grace period because the government covers the interest. However, if you have Unsubsidized Stafford Loans, interest will accrue during the in-school and grace periods. If you choose not to pay the interest, it will be capitalized when repayment begins.
The Perkins Loan program ended in 2017, but borrowers who still have Perkins Loans retain their original grace period rules. Perkins Loans have a 9-month grace period. Borrowers attending school less than half-time should confirm the exact timeline with their school’s financial aid office. Perkins Loans do not accrue interest during the grace period.
PLUS Loans are different because they technically do not include an automatic grace period. By default, repayment begins within 60 days of the final loan disbursement. However, PLUS borrowers—both parents and graduate students—may request a deferment while the student is enrolled at least half-time, and for 6 months afterward.For payoff strategies and ways to manage balances over time, take a look at our comprehensive section on Student Loan Debt.
Private student loans often include grace periods; however, terms vary widely by lender. You must check your specific loan agreement to know when repayment starts. For nearly all private student loans, interest accrues during the grace period and is capitalized when repayment begins. To avoid capitalization, you can make interest-only payments during the grace period or enter full repayment early.
Grace periods are an important financial feature that allows borrowers to transition from student life to professional life without the immediate pressure of loan repayment. However, understanding the terms of your grace period and acting wisely during this time can save you thousands of dollars in the long run.
Although grace periods allow for a temporary pause in required payments, it is often advantageous to start paying your loans earlier. For unsubsidized federal loans and nearly all private loans, interest accrues during the grace period. If you wait until the grace period ends, this interest is capitalized, increasing your total loan balance.
Making even small payments during the grace period can reduce the overall cost of your loan. Paying off accrued interest before capitalization prevents your loan balance from growing, lowers total interest costs, and helps you adjust to budgeting for repayment.
Loan consolidation is another option to consider during the grace period. Consolidating federal loans creates a new Direct Consolidation Loan with a new repayment schedule. However, consolidating before your 6-month grace period ends causes you to forfeit any remaining grace period—your new consolidation loan enters repayment right away. Consider whether simplicity outweighs the loss of remaining grace period.
As your grace period comes to an end, it’s crucial to prepare for active repayment. Begin by reviewing the terms of your loans and understanding your expected monthly payment. Creating a budget that includes your student loan payments ensures you can manage your finances effectively.
Explore your repayment options. Federal loans offer multiple repayment plans—including income-driven repayment (IDR)—which set your monthly payment based on your income and family size. Private lenders offer fewer repayment choices, but some provide temporary hardship options.
Establishing an emergency fund during your grace period can provide financial security once repayment begins. Having three to six months of living expenses saved can prevent financial stress in case of unexpected events, such as job loss or medical emergencies. This safety net ensures you can continue making loan payments even during difficult times.
If you are unsure about the best course of action for managing your loans, consider seeking advice from a financial advisor or your loan servicer. They can provide insights into your specific situation and help you navigate the repayment process.
Grace periods are a valuable tool for recent graduates transitioning to the workforce, but they should not be viewed as a time to ignore student loans. Taking proactive steps, such as making early payments or consolidating loans, can significantly reduce your financial burden over time. By understanding the terms of your loans and making informed decisions, you can set yourself up for long-term financial success.
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