What Is the Student Loan Grace Period?

Creating a plan to tackle your student debt is essential—especially since you have, at best, only a six-month grace period after graduation before you have to start paying back those loans.

That grace period is not for all borrowers. Federal student loans allow a six-month window after graduation in which borrowers have time to prepare their debt repayment plans. Private student loan lenders may or may not offer a grace period.

Understanding Student Loan Grace Periods

A grace period is a set period of time when no payments are due on student loans. Its purpose is to allow time for borrowers to choose a loan repayment option and create a budget for repaying student debt. This includes the opportunity to explore income-driven repayment (IDR) options.

For most federal student loans, the grace period is for six months and applies when you:

• Graduate from college
• Leave school
• Drop below half-time enrollment

You may have up to nine months to begin repaying student debt if you have a Perkins Loan. With federal PLUS (Parent Loan for Undergraduate Students) loans, you do not get a grace period; instead, you can take advantage of a six-month deferment period if you graduate, leave school, or drop below half-time enrollment.

However, private student loan lenders can choose whether or not to offer a grace period. Sallie Mae, one of the top student private-loan lenders, offers a grace period for six months after graduating or leaving school.

If you have a private student loan, contact your lender to determine if your loan has a grace period and (if applicable) when it will apply. If you do have a grace period for a private student loan, be sure to also find out whether interest will accrue during that time.

How to Use the Student Loan Grace Period

During your loan grace period, you’re not obligated to make any payments toward your loans; however, you have the option to do so, even if you’re only paying the interest. The advantage of paying interest during this time is that you can prevent it from being capitalized and added to your loan balance.

If you’re currently in your grace period, or soon will be because you’re graduating or leaving school, the following checklist can help you make the most of it.

1. Determine What You Can Pay

Six months can go by quickly, so it’s important to know before this time is up how much you can realistically afford to pay toward your student loans. If you don’t yet have a budget in place, the grace period allows you time to create one. First, look at your monthly income. Then, subtract all of your monthly expenses from what you make—or expect to make once you secure a job. This can give you a ballpark number of what you may be able to afford to pay toward your loans.

2. Compare Loan Repayment Options

If you have federal student loans, you may be eligible for one of several payment plan options. Typically, borrowers can choose from:

• Standard repayment
• Graduated repayment
• Extended repayment
• Income-driven repayment (IDR)

The standard repayment plan calculates your monthly payments based on a 10-year repayment schedule. You pay the same amount each month for the entire 10 years. Graduated repayment also follows a 10-year repayment schedule, but your payments increase over time. Extended repayment gives you up to 25 years to pay if you owe $30,000 or more in federal direct loans. Income-driven plans base your monthly payment on your income and household size. The options include:

• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
• Income-Sensitive Repayment
• Pay as You Earn (PAYE)
• Saving on a Valuable Education (SAVE), which replaced Revised Pay as You Earn (REPAYE)

Your loan type, loan disbursement date, household size, and household income will determine the income-driven repayment plans for which you’re eligible.

The advantage of income-driven repayment is that you may end up with a lower monthly payment. The downside is that instead of paying loans off in 10 years, you may be making payments for 15 or even 25 years, and you’ll pay more in interest over the life of the loan than you would under a standard repayment plan.

3. Seek an Employer That Offers Student Loan Help

An estimated 48% of employers offer some type of educational assistance, which can include student loan refinancing, counseling, consolidation, and repayment programs. If you’re heading out into the workforce for the first time, consider whether your prospective employer can help with student loan repayment.

Then, when navigating interviews and job offers, ask about any student loan refinancing or repayment assistance in the benefits package.

4. Consider Loan Consolidation or Refinancing

Consolidating student loans or refinancing them could make repayment easier once the grace period ends. Federal loans can be consolidated into a single direct consolidation loan. This won’t reduce your overall interest rate, but will leave you with a single monthly loan payment instead of multiple payments to multiple federal loans.

Refinancing means taking out a new private student loan to pay off your existing loans. The purpose of doing so is twofold: You can reduce multiple loan payments down to one, and you potentially reduce your interest rate. Remember to compare student loan refinancing companies if you’re interested in getting a lower rate on your loans.

Keep in mind, however, that refinancing federal student loans into a private student loan can cause you to lose certain federal protections. For example, federal Coronavirus Aid, Relief, and Economic Security (CARES) Act protections, such as temporary deferment, do not apply to private loans, so it’s important to consider the tradeoffs of refinancing federal loans with a private lender. You also won’t be eligible for federal student loan repayment plans once you have a private loan.

The Bottom Line

The student loan grace period should be used wisely to create a debt repayment plan that’s right for you. If you’re not sure how you’ll handle loan repayment when the time comes, get in touch with your lenders or loan providers. They may be able to review your budget and income and help you come up with a solution for repaying student loans that meets your needs.