Student Loan Grace Period: A Simple Guide (Federal and Private)

So you’ve been wondering:

When referring to student loans, what is a grace period?

Chances are you’re asking that question either because you want to know:

1. How long does a student loan grace period last;
2. What type of student loans are eligible for a grace period;
3. What is the purpose of the grace period;
4. Who do I contact about getting a grace period for student loans; and
5. Does interest accrue during the grace period?

In this post, I’ll answer all of those questions and one more: what to do before the student loan grace period ends.

But before we get to those questions, let’s start with the basics:

1. What is a student loan grace period

A grace period is simply a period of time where payments aren’t required.

For federal student loans, the Department of Education places your loans in a grace period when you:

• graduate
• leave school
• drop below half-time enrollment.

2. What type of loans are eligible for a grace period & how long is a great period

Federal student loans. For federal student loans, the grace period will last either six months or nine months. The difference comes down to what type of federal student loans you have.

Both Federal Direct Loans and Federal Family Education loans have a 6-month grace period.

Related: How Freddie Mac Helps You Buy a House While in a Student Loan Grace Period

Perkins loans typically have a 9-month grace period.

PLUS loans (these are loans you take out in graduate school or if you’re a parent) have no grace period. You can, however, defer repayment during the 6 months after you or your child leave school.

The grace period can be extended for up to three years if you're on active duty.

You can find out what type of federal student loans you have by visiting the Department of Education’s National Student Loan Database.

After you log in with your FSA ID, you’ll see all of your federal student loans.

The second column tells you what type of federal student loans you have.

As you can see, this person has 3 different types of loans:

• Direct Loans;
• Federal Perkins loan;
• Federal Family Education Loans

Private student loans. Not ever private loan has a grace period. To find out if your private student loan has one, check the promissory note you signed. If you no longer have a copy of it, contact your servicer to find out.

Those two steps are exactly what Sallie Mae advises about its grace period for student loan payments.

3. What is the purpose of the grace period of a student loan

The purpose of a student loan grace period is pretty straight-forward:

To give you time to get on your feet financially before a payment is due.

As I said above, the federal government gives you 6 to 9 months to find a job and get your finances in order. Your private student lender may not be as kind.

4. Who do I contact about getting a grace period for student loans

This part is easy.

Getting a grace period for your student loans usually happens automatically.

Once you leave school, notice should be sent to your federal student loan servicer to let them know to start the grace period. From there, the grace period should be automatically applied.

• Navient grace period (for federal student loans)
• Fedloan grace period
• Great Lakes grace period
• Nelnet grace period

The process for getting your private student loans might be different. You may need to contact them to let them know to start the grace period.

5. Does interest accrue during a grace period

Short answer:

Yes.

What exactly happens with that interest depends on the type of loans you have.

Federal student loans. For federal student loans, interest will accrue on your loans during a grace period.

What happens to that interest depends on whether your loans are subsidized or unsubsidized.

Let me explain.

If you have subsidized loans, the government will pay your interest during the grace period.

But if you have unsubsidized loans, you’ll be responsible for the interest that accrues during the grace period. If you want, you can pay the interest while you wait for the grace period to end. But you decide not to do that, then once the grace period ends, the accrued interest will be added to your principal balance.

Here's a breakdown of the different federal loan types and interest during a grace period:

• Direct Subsidized loans: charge interest but paid for by the government
• Direct Unsubsidized loans: charge interest
• Direct Parent PLUS loans: charge interest
• Direct Grad PLUS loans: charge interest
• Perkins loans: charge interest but paid for by the government

Private student loans. Typically, you’re responsible for paying the interest that accrues on your private student loan during a grace period. Much like with unsubsidized federal student loans, you can choose to pay the interest during the grace period. If you choose not to do so, the accrued interest is usually capitalized. (Depending on your interest rate, your private loan can rapidly increase during this time.)

6. What to do before the student loan grace period ends

There’s no doubt about it:

The one thing you need to do before your student loan grace period ends is to get into a student loan repayment plan — especially if you need payments based on your income.

Related.

• Best Repayment Plans for Student Loans: How to Choose
• Three Reasons Why The PAYE Plan is Better Than The REPAYE Plan

To get an idea of your monthly loan payments, use the Department of Education’s Repayment Estimator.

The Repayment Estimator will estimate your monthly payments using your:

• family size;
• state of residence;
• federal student loan balance and type of loan;
• marital status;
• tax filing status; and
• adjusted gross income.

This tool is incredible.

Not only does it review all of your repayment options, but it also helps you decide whether you can afford to repay your federal student loans in 10 years or if you need to use an income-driven repayment plan to lower your payment.

Private student loans don’t have a tool like this.

That’s because private student loans typically don’t offer variety in repayment plans. You either make:

• the monthly payments that are in your contract; or
• interest only payments for a brief time.

If your payment is too high, you might consider trying a private student loan settlement. You may be able to drastically lower your payments with a structured settlement.

Final word

Student loan grace periods are awesome. You’re just leaving school. You’re still trying to save money while buying stuff you need to get by. Having even the slightest of breaks before you have to repay your student loans is critical.

That said if your goal is to pay off your student loans quickly, waiting for the grace period to end before you begin making payments is a bad idea.

You may cost yourself thousands by allowing the accrued interest to capitalize.

My advice? If you can afford to pay, pay.

That is unless you qualify for Public Service Loan Forgiveness.

In that case, wait for your loans to be forgiven.