The Simple Guide to Student Loan Grace Periods (Federal and Private)

Right after you leave school, the idea of paying back your student loans can be daunting.

However, most student loan lenders offer a grace period to give you a chance to prepare.

The purpose of a student loan grace period is to give you time to prepare for making payments on your loans. It gives you time to start a new job, apply for income-driven repayment options (if necessary), and develop a budget.

Let’s take a look at how it works and the most common questions about the student loan grace period.

The student loan grace period is a span of time in which you don’t have to make payments on your student loans. The Department of Education places your federal student loans in a grace period immediately after you graduate, leave school, or drop below half-time enrollment.

You do not have to request a grace period from your lender if your loan is eligible.

How do you know if your student loan is eligible for a grace period? All federal loans are eligible for grace periods except for PLUS and Parent PLUS loans. However, Grad PLUS loans (for graduate and professional students) offer an automatic six-month deferment after you graduate, leave school, or drop below half-time enrollment.

If you’re a parent who took out a PLUS loan for your child, you’ll have to request a six-month deferment from your lender when your child graduates, leaves school, or drops below half-time enrollment.

Private student loan borrowers typically have a grace period that follows the same rules as federal loans, but you should check with your lender if you’re not sure.

Many private and federal student loans, including both federal Stafford subsidized and unsubsidized loans, offer a six-month grace period. Federal Perkins loans and some private student loans offer a nine-month grace period.

Not sure what kind of loans you have? You can find out what type of federal student loans you have by visiting the Department of Education’s National Student Loan Database.

For private student loans, contact your loan servicer to find out your grace period length. If you are unsure of your private loan servicer(s), you can view it on your credit report.

You can access your full credit report for free once per year at AnnualCreditReport.com, a summary of your credit report through CreditKarma, or by directly contacting TransUnion®.

During a grace period, interest still accrues on your student loans in most cases.

A grace period is not the same thing as forbearance or deferment. However, all of these let you pause making your student loan payments.

Like a grace period, a period of forbearance suspends your payments while interest still accrues. But you must proactively request forbearance and may be required to submit documentation to prove your eligibility. Forbearances last for up to 12 months at a time.

During a deferment period, you don’t have to make payments, and your loan does not accrue interest (except for unsubsidized federal loans and most private loans).

In-school deferment can last at least four years (sometimes indefinitely, depending on your lender), and most other deferments last for up to three years.

This part is easy: Getting a grace period for your student loans usually happens automatically. You don’t have to request a student loan grace period.

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.

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.

You cannot extend the grace period on your student loans unless you go back to school at least half-time or are called to active duty in the military before the grace period ends.

In all other cases, the length of the grace period is determined by the type of loan you have and cannot be extended.

Consider contacting your financial aid office if you’re still in school, but your class schedule is calculated as less than half-time. They may be able to help adjust your schedule so you still qualify for in-school deferment.

Interest almost always accrues during the grace period on your student loans.

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.

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 paying 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. However, if you decide not to do that, once the grace period ends, the accrued interest will be added to your principal balance (known as capitalized interest).

Here’s a breakdown of how different federal loans charge 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 decide not to do so, the accrued interest is usually capitalized. (Depending on your interest rate, your private loan balance can rapidly increase during this time.)

If you can, you should make payments on student loans during your grace period. Many lenders suggest making interest payments to avoid interest capitalization during this time. Otherwise, the accrued interest will increase your overall student loan balance when your grace period ends.

Contact your servicer if you can’t afford to make payments during your grace period and don’t think you can start paying on your scheduled first payment date. You may qualify for temporary forbearance or deferment.

Your loan servicer will include a date for your first payment on the paper or digital statement they send you. Many servicers even send multiple emails to notify you of your upcoming student loan payments before your grace period is over.

Your grace period exists to help you prepare to pay your student loans after leaving school. So, before your student loan grace period ends, get your finances in order and get into a student loan repayment plan.

You can prepare to make your first payment on your education loans by:

• Setting up a household budget

• Saving money during your grace period (or even while you’re in school)

• Looking for an employer who offers loan payment assistance benefits

• Enroll in an income-driven repayment (IDR) plan (PAYE, REPAYE, income-based repayment, or income-contingent repayment)

A student loan repayment plan is crucial if you need payments to be calculated based on your income. Otherwise, your student loan payment amount will be based on a standard 10-year repayment term and may be more than you can comfortably pay right out of college.

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

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

• adjusted gross income

• other circumstances

Not only does this tool review all of your repayment options, but it can also help 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.

You may be eligible for income-driven repayment even if you’re self-employed.

Private lenders 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.

Don’t miss payments or allow your student loans to go into default unless you’re planning a strategic default with the advice of a student loan professional. If you don’t pay your student loans, interest capitalization and late fees will continue to increase your loan balance.

Student loan default can impact your credit score, ability to buy a house, or eligibility for other lines of credit (such as for a car loan or credit cards).

Many people choose to consolidate or refinance their student loans to save money with a lower interest rate and/or to pay their education loans in one monthly payment (rather than several).

However, for borrowers with federal student loan debt, these options impact the standard grace period.

Refinancing your federal student loans requires you to borrow a new loan to pay off your current student loans. This can result in a better interest rate and single monthly payment, but you lose many benefits of loans disbursed by the US Department of Education.

After refinancing federal loans, you no longer qualify for a new grace period if you re-enroll in school or are called to active duty in the military.

If you already have private loans, refinancing might be a sensible option.

When you consolidate your federal student loans, you combine multiple federal student loans into one federal loan. This has many advantages, including improving your eligibility for student loan forgiveness programs and extending your loan term.

However, once your Direct Consolidation Loan has been processed, you will be required to begin repayment immediately.

If you’re in a grace period, you can request your consolidation to be processed near the end of this period, so you still have a full six or nine months before making payments.

Private student loans are not eligible for consolidation, but you can refinance one or more loans for a lower interest rate or lower monthly payments.

Learn More: What is public service loan forgiveness? Do you qualify?

If you are called to active duty military service for at least 30 days at any point during your student loan grace period, your federal student loans will be deferred until your service ends. At that point, your entire grace period restarts.

How does the CARES Act affect the federal student loan grace period? During the COVID-related changes to student loan repayment, grace periods have worked as usual.

But most borrowers haven’t been required to make payments, and federal loans haven’t accrued interest because of the coronavirus student loan relief from the CARES Act.

If you graduated, left school, or dropped below half-time enrollment between March 2020–April 30, 2022, your eligible loan went into a grace period. After six months during this period, your loan was then transferred to payment suspension and 0% interest accrual under the CARES Act.

If you’re still in the middle of your grace period on April 30, 2022, your student loan payments will start once the standard six-month grace period has ended.