Understanding the Student Loan Grace Period: What It Is, How It Works

Half of undergraduate students graduate with student loan debt according to the College Board, yet many borrowers aren't sure when repayment begins. Most federal and some private loans include a grace period after you leave school, giving you time to prepare before your first payment is due.

Understanding how the grace period works can help you get a head start on managing your student loans. Here's what you need to know to make the most of this crucial time.

What is a student loan grace period?

A student loan grace period is the time after you graduate, leave school, or drop below half-time enrollment when you're not required to make monthly payments. This built-in pause gives you time to find a job, adjust to post-college life, and plan your repayment strategy.

Most federal student loans include a standard six-month grace period as part of their borrower benefits. Some private lenders also offer grace periods, but it's not guaranteed. Terms vary by lender, so it's important to check the specifics of your loan agreement.

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How long is the grace period for student loans?

The length of your grace period can vary depending on whether you have federal student loans or private student loans.

Federal student loan grace periods

Federal student loans typically include an automatic six-month grace period for Direct Subsidized, Direct Unsubsidized, grad PLUS, and FFEL program loans. This means you don't need to apply for the grace period, since it's built into the loan terms.

Federal Perkins Loans offer a slightly longer grace period of nine months, which also applies automatically.

Parent PLUS loans, however, do not come with an automatic grace period. Parents can request a grace period when they apply for the loan, which provides a six-month deferment after their child graduates, leaves school, or drops below half-time enrollment.

Private student loan grace periods

Grace periods for private student loans vary widely since they aren't standardized across lenders. While some lenders offer a six-month grace period similar to federal loans, others may require payments to start immediately after you leave school or while you're still enrolled. Some private lenders may offer longer or shorter grace periods, depending on the loan terms.

To find out if your private loan includes a grace period, review your loan agreement or contact your loan servicer for details.

What happens during the grace period?

For most student loans, interest accrues daily during the grace period, meaning the lender continues charging interest even though payments aren't required yet. However, the rules around interest accrual vary depending on the type of loan you have.

Federal Direct Subsidized Loans are an exception. These loans don't accrue interest while you're in school or during the grace period. Interest only begins once repayment starts. Subsidized loans are reserved for undergraduate students who demonstrate financial need, and they make up about 16% of student loans, according to the College Board.

The majority of borrowers (roughly 58%) take out federal Direct Unsubsidized Loans or grad PLUS loans. Both of these loans accrue interest while you're in school and during the grace period. When repayment begins, the unpaid interest gets capitalized, increasing your total loan balance.

Tips for navigating the grace period

Navigating the grace period effectively can set you up for repayment success. According to Mark Kantrowitz, author of “How to Appeal for More College Financial Aid,” borrowers “are more likely to miss the first payment after the end of the grace period than any other payment.”

That's why Kantrowitz urges borrowers to use the grace period to prepare for repayment and set themselves up for success. Below are some of the best ways to get ready for repayment during the grace period.

1. Monitor your loans

Recent graduates are more likely to forget about repayment because “their student loans were out of sight, out of mind for half a year,” says Kantrowitz.

To avoid this, keep track of your loans during the grace period, even if you don't plan to make payments right away.

Start by identifying your loan servicer and setting up an online account with them. Confirm how long your grace period lasts, when repayment begins, and whether interest is accruing. If you can't find the answers online, reach out to your servicer directly by phone or email.

It's also important to stay in touch with your loan servicer if you move during the grace period. “Borrowers should let the loan servicer know about any changes in address,” Kantrowitz explains. “The loan payments are due even if you didn't receive the loan statement.”

2. Explore your repayment options

Your grace period is the ideal time to review the repayment plans available for federal student loans and choose the one that fits your financial situation.

• Standard Repayment Plan: Make fixed monthly payments over 10 years.
• Graduated Repayment Plan: Payments start lower and increase every two years.
• Extended Repayment Plan: This plan spreads your payments over 25 years, but you need to have more than $30,000 in loans to qualify.
• Income-driven repayment (IDR) plans: IDR plans adjust your monthly payment based on your income and family size, offering flexibility if your income is low.

Check Out: Student Loan Repayment Plans: Which Option Should I Choose?

You should also research loan forgiveness programs during the grace period to understand eligibility requirements. Planning early ensures you can meet the necessary criteria and maximize potential savings right from the start of repayment.

3. Budget for the loan payments

During your grace period, ask your loan servicer how much your expected monthly payment will be. Once you've settled into your new job and financial situation, create a monthly budget that includes your loan payment as well as your other monthly expenses.

4. Consider making payments during the grace period

If it fits in your budget, consider making payments during the grace period. For most loans, interest accrues during the grace period and will be capitalized (added to your loan balance) once repayment begins. This increases the total amount you'll owe over time. Any payments you make now, even smaller than your regular monthly payment, can help lower the long-term cost of your loan.

If you're not ready to start making payments yet, Mark Kantrowitz suggests you “practice” paying your student loans in advance.

“Each month, move the amount of the loan payment into a savings account so you get used to having less money to spend,” he suggests. You can either choose to later apply the money toward your loan, or keep it as a financial cushion.

What if I need more time before repayment?

Six months may sound like a long time, but the typical grace period may still not be enough for some borrowers. If you're struggling to find a job or have money concerns during your grace period, you have options to help you manage repayment.

Start by reaching out to your loan servicer. Let them know about your situation and ask about available options. Your loan servicer can't help you if they're unaware of your challenges. Depending on your loan type, they may offer temporary relief, or alternative repayment plans to help you stay on track.

See Also: How To Get Student Loan Repayment Help

Federal student loan borrowers may be able to access either loan deferment or forbearance options if they need more time after the grace period elapses. These options will temporarily suspend payments until your financial situation improves — although interest will continue to accrue.