What is a student loan grace period?

The student loan grace period is the time you’re allowed before you have to start paying back your student loans. The length of your grace period can vary depending on the type of loan you took out, and unfortunately, some students loans don’t come with a grace period at all. 

The average student loan debt as of 2021 is $37,104 per borrower. This can be an overwhelming debt to deal with after graduating from school—and that’s precisely why the grace period exists. The purpose of the grace period is to give students the opportunity to find a job after they graduate and become financially stable before starting to pay back their loans. Being aware of your grace period can help you plan to start making payments. 

To help you be better prepared, check out this guide to the student loan grace period. 

How long is my student loan grace period, and when does it start?

Most student loans have a grace period of six months. Here’s the breakdown:

• Federal direct subsidized loans and direct unsubsidized loans:Six months

• Federal Stafford subsidized and unsubsidized loans: Six months

• Federal PLUS loans: Six months (if applicable, parents of students will need to request the six-month grace period on the loan application)

• Federal Perkins loans: Nine months

• Private loans: The grace period varies by the lender. Many private student loans offer a six-month grace period, but some don’t have one and expect payment as soon as the loan is disbursed. The loan agreement should state when payments are due.

For most loans, including federal student loans and the majority of private student loans, the grace period starts as soon as a student drops below half-time enrollment. This means dropping enough classes, taking a gap year or graduating are all situations that can trigger the start of your grace period. 

The definition for “half-enrollment” varies at each school, so make sure you check with your school and understand the threshold. 

Can my grace period change?

Yes, your student loan grace period can change, either by being cut short or by restarting. There are certain things that can affect your student loan grace period, such as:

• Active military duty: If you’re called to active military duty for more than 30 days before your grace period has officially ended, your six-month grace period will restart when you return from duty.

• Reenrolling in school: If you reenroll in school with at least a half-time course load before your grace period ends, your six-month grace period will restart when you drop below half-time enrollment (because you withdraw, drop classes or graduate).

• Consolidating your loans: Consolidating your loans while you still have time left in your grace period essentially forfeits the grace period. However, you can request that the consolidation only happens at the end of your grace period so you get to take full advantage of the payment-free period.

Does interest accrue during the grace period?

For most student loans, yes, interest accrues during the grace period. However, direct subsidized loans are one of the few exceptions where interest doesn’t accrue during the grace period. 

Many people choose to pay the interest during the grace period to prevent interest capitalization. Otherwise, the loan will grow during the grace period, and when payments do start, the loan will be bigger than ever. 

Due to COVID accommodations, federal student loans are currently not accruing interest, and this will last through May 1, 2022. The COVID accommodation deadline has already been extended due to changes with the pandemic, but assume that an extension won’t happen again just in case. 

Can I make payments during the student loan grace period?

Yes, you can make payments during the grace period. In fact, you can even make payments while you’re still in school, if you want. If you can do so, this is actually a great way to work toward paying off your loan sooner. You’ll graduate with a smaller loan and less stress. 

If you can’t afford full payments, try to cover the cost of the interest during the grace period, as mentioned earlier. This will ensure your loan doesn’t balloon up throughout your grace period. 

You should receive a letter or email from your loan provider reminding you that you can pay off your interest before it’s added to your balance or capitalized. 

What happens when the grace period ends?

Before your grace period ends, you should receive a repayment schedule from your loan servicer that details how much your payments are and when they’re due. 

If you want to request a different repayment plan (such as income-driven repayment plans) or find out what other options you have for repayment (such as forbearance, deferment or loan consolidation), reach out to your loan servicer. If you want to make any of these changes, it’s important to contact your loan provider as soon as possible. Often these changes can take a couple of months to approve, so don’t wait to make your request. 

It’s crucial that you’re realistic about the payment plan from the very start. If you’re worried you can’t afford the proposed payment schedule, reach out to your provider immediately. It’s better to make a change to the repayment plan than to struggle to keep up and eventually fall short on payments. 

Know how student loans affect your credit

Student loans can affect your credit both positively and negatively, just like all loans. For example, if you pay your student loans on time, you’ll accrue positive payment history on your credit report, which will boost your credit score. However, if you miss or make late payments, you’ll see a drop in your credit score due to the negative payment history. 

Keep in mind that you want to do everything you can to avoid your student loan going into default, which is what happens when you’ve missed at least nine months of payments. A loan in default will be added as a negative itemto your credit reports. This negative item can stay on your reports for up to seven years and will likely decrease your credit score and impact your ability to be approved for future credit.

Note that your loan going into default doesn’t mean you can ignore your payments. If you do, loan providers can take action against you, resulting in wage garnishment, withholding tax refunds and applying additional loan fees or interest accruals. 

If you can’t make your loan payments anymore, reach out to your loan provider to understand your options. 

As you repay your student loans, you must watch your credit reports to make sure everything is reported accurately. Even one misreported late or missed payment can significantly impact your credit score. If you’re unsure where to start with credit report errors, let the professionals at Lexington Law Firm help. We can offer you a free credit report consultation to help get you started.