Even if you’ve got the job of your dreams lined up and waiting for you the moment you graduate, it takes time to start generating income. If you’ve also got student loans to repay, waiting on those first paychecks can be an agonizing experience. Thankfully, graduates and others who have left school don’t have to start paying off their student loans right away. Instead, most loans come with a student loan grace period.
Key Takeaways:
- A student loan grace period is the time after you leave school before your first loan payment is due—typically six months for most federal and private loans.
- Grace periods vary by loan type: Federal Direct Subsidized and Unsubsidized Loans usually offer six months, while College Ave provides a six-month grace period for undergraduate loans and from nine to 36 months based on graduate loan type
- Interest may continue to accrue during your grace period depending on your loan type. For unsubsidized and private loans, unpaid interest can capitalize—adding to your total balance.
What Is a Grace Period for Student Loans?
When you take out a student loan, you agree to pay back the loan plus interest and to abide by a repayment schedule. A student loan grace period delays the start date of required payments, giving former students more time to find employment and organize their finances before full loan payments begin. Most student loans have a six-month grace period, giving you half a year to get settled in before you have to worry about making payments.
Typically, the grace period begins as soon as you are no longer attending school. This includes graduating, leaving school prior to graduation, or dropping below half-time enrollment.
How Long Are Student Loan Grace Periods?
As mentioned above, most student loans have a grace period of six months. Some loans allow for longer grace periods, some have more limited grace periods, and others might not offer grace periods at all. The length of the grace period depends on the type of loan:
- Federal Direct Subsidized loans: 6 months
- Federal Direct Unsubsidized loans: 6 months
- Federal Direct Grad PLUS 6 months deferment
- Federal Direct Parent PLUS: 6 months deferment (must be requested on the loan application)
- Private student loans: Varies depending on the lender and type of loan. College Ave offers a six-month grace period on undergraduate student loans and from nine to 36 month grace periods dependent on what graduate student loan.
Important Update: Starting July 1, 2026 Grad PLUS loans will no longer be available to new borrowers and Parent PLUS loans will have new caps. Grace periods for current borrowers should remain the same. Read more about recent federal loan changes here.
Depending on your repayment plan, private lenders may require payment as soon as the money from the loan is disbursed, meaning that you may be required to make payments even before you leave school. Before you agree to the terms of any student loan, it’s always a good idea to speak with your loan servicer to make sure that you understand your grace period, and when your lender expects you to begin making payments on your loan.
How Interest Works During Your Student Loan Grace Period
Understanding how interest accrues during your student loan grace period is helpful for managing your loan effectively. While the grace period gives you time before your payments begin, interest can still accrue depending on the type of loan you have.
Direct Subsidized Loans:
- Interest Accrual: No interest accrues during your time in school or during the grace period. The federal government covers the interest.
- What This Means for You: Because no interest is added during the grace period, your balance will remain the same when you start repayment, making it the most beneficial type of loan in terms of interest accrual.
Direct Unsubsidized Loans:
- Interest Accrual: Interest accrues during both your time in school and the grace period.
- What This Means for You: Unlike subsidized loans, you are responsible for paying the interest that accrues. If you don’t make payments on the interest during the grace period, it will capitalize, which means it will be added to your principal balance once repayment begins, increasing the total amount you owe.
Federal Direct PLUS Loans (for Parents and Graduate Students):
- Interest Accrual: Interest accrues during the grace period.
- What This Means for You: PLUS loans accrue interest during the grace period. If you don’t pay the interest before the end of the grace period, it will be capitalized into the principal balance when repayment starts, just like with unsubsidized loans.
Private Loans:
- Interest Accrual: Private loans often accrue interest during the grace period, similar to unsubsidized federal loans.
- What This Means for You: Interest will continue to build up during the grace period, and if not paid, it will be added to your principal balance when repayment begins.
How Can I Take Advantage of My Student Loan Grace Period?
On the surface, the student loan grace period looks like time off, and that’s exactly how many borrowers treat it. But if all you do is delay your initial payments, you might find yourself in a difficult situation once the grace period ends. Instead, it’s recommended that you use that grace period to better prepare to meet your loan payment obligations once they come due.
1. Get a Clear Idea of How Much Your Payments Will Be
One thing you don’t want is for your payments to be a surprise once they come due. An important thing you can do during your student loan grace period is to find out who your student loan servicer is and what your monthly payment will be. By taking the time to reach out to the company, you can ensure they have the most up to date contact information to receive your monthly statements and resolve any issues before they arise.
If you’re struggling to meet your monthly payment obligations, reach out to your loan servicer for payment options. For example, your federal student loan could qualify for an income-based repayment plan. Different lenders offer different payment options, so connect with your loan servicer to see what’s available.
Important Update: Recent changes have also been made to federal loan repayment plans. To view the most up to date information, visit the Federal Student Aid website.
2. Organize Your Finances
Knowing that an additional monthly payment is coming gives you a good opportunity to organize your finances and create a working budget. Get a handle on your ongoing expenses and one-time costs, and get in the habit of putting away a portion of your income into savings. Then, once your student loan grace period ends and your payments start, you should have an easier time adjusting to your new expenditure.
If you know how much your monthly payment will be and feel as though you won’t have any problem making payments on time, you might consider setting up automatic payments. With autopay, you can be sure your loan payments are made on time each month. Most lenders also offer an interest rate discount if you set up autopay on your loan.
3. Consider Consolidating Multiple Federal Loans
If you took out multiple federal student loans, you may want to use the grace period to consolidate or even refinance your loans together under a single servicer. Consolidating your loans does not reduce the total amount of interest you have to pay, but it can help simplify your budget by combining several monthly payments into one. Additionally, the time you have to pay off federally consolidated loans is based on the total amount that you owe; by consolidating you may be able to extend the length of the loan and reduce your monthly payment, but you’ll pay more interest overall. Be sure to check with your loan servicer that by combining loans, before consolidating your loans, carefully evaluate your financial situation and whether you’ll lose any borrower benefits.
4. Pay Off Interest
Although you will not be required to make full principle and interest loan payments during your grace period, you should recognize that the interest on your loan is still building even while you wait for your regular payments to begin. Once that interest capitalizes, it is added to the loan principal, resulting in a larger loan balance. Interest is usually capitalized at the end of your grace period.
You can lower the amount of interest that is capitalized by making any payments towards your loan during your grace period. As long as the payments are enough to cover the interest that’s being accrued, it won’t capitalize and won’t add to the balance. Even if you don’t feel like you can make full payments, paying off the interest makes good financial sense.
5. Start Making Payments Ahead of Schedule
Perhaps the most financially responsible way to use your grace period is to act like it doesn’t exist. Get in the habit of making payments as early as possible on your student loans, and you will be in a much better position once the grace period ends.
Making Your Student Loan Grace Period Work for You
If you need time to get settled in and find a job after graduation, the student loan grace period can feel like a lifesaver. Just keep in mind that grace periods don’t last forever. Be proactive during your grace period and use that extra time to secure your situation, establish a budget, and build good financial habits.
Remember that your loan servicer is just as invested in your success as you are. If you’ve experienced unexpected changes in your income or need to reevaluate your payment plan, discuss your situation with your lender as they will most likely be willing to do what they can to help you get your finances back on track.
Take control of your student loans with College Ave. Explore competitive rates and customizable repayment terms by applying for a student loan or refinancing your existing loans. Apply Now and Save.
