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.
Here, we answer all of your questions about the student loan grace period, starting with the most important question of all: What is it?
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. How long of a grace period can you expect for specific loan types? Here’s an overview:
- Federal Direct Subsidized loans: 6 months
- Federal Direct Unsubsidized loans: 6 months
- Federal Direct PLUS loans for graduate students: 6 months
- Federal Direct PLUS loans for parents: 6 months (must be requested on the loan application)
- Private student loans: Varies depending on the lender and type of loan. College Ave Student Loans offers a six-month grace period on undergraduate student loans and nine-month grace periods on most graduate student loans.
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 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.
Here are some suggestions to help you make the most of the student loan grace period:
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 is your student loan servicer 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 income-based repayment plan. Different lenders offer different payment options, so connect with your loan servicer to see what’s available.
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 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.
Also, 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 &emdash; they will most likely be willing to do what they can to help you get your finances back on track.