What is a grace period? Understanding loan terms

What is a Grace Period?

In general, a grace period is a time span after a deadline in which a penalty would normally be levied, but is waived.  When it comes to international and study abroad student loans, a grace period is a certain amount of time after you graduate, drop below half-time status, or otherwise leave school, where you do not have to pay your loans.  During the grace period, no late fees are charged and not paying doesn’t adversely affect your credit score.  However, the terms of the grace period are different for each type of loan you have.  The most important things to know about your grace period is:

• how long the period lasts
• whether interest will be accruing on the loan during the grace period
• whether you are eligible for another grace period after a deferment

 Grace Period Terms for Most Common Student Loans

When will I need to make my first payment?

The grace period begins the day you graduate, drop to half-time, or leave school.  You will need to make a payment by the deadline of the period following your grace period.  For example, if you are a U.S. citizen and have a subsidized Stafford loan and you graduate on June 1^st, 2014, your grace period will end on December 1^st.  Because Stafford loans are paid on a monthly basis, your first payment will be in January of 2015.  However, some loans are not paid monthly, such as Perkins, which are paid on a quarterly basis.  In this case, your first payment wouldn’t be until March of 2015. If you are an international student and have a private student loan, it’s important to contact your lender directly to find out when you’ll need to make your first payment.

How do grace periods affect students who study abroad?

Generally, studying abroad doesn’t affect your loan or the grace period (other than perhaps the amount that you take out).  If some of your federal loans (Stafford, Perkins, and PLUS) – which are for U.S. citizens and permanent residents only – were used to study abroad, you still enter the grace period after you graduate or drop to less than half-time status, the same way it would if you hadn’t studied abroad.  However, if you participate in a self-designed study abroad program such as enrolling directly in a school overseas, this may trigger the grace period.  If you enroll in a school not recognized by the U.S. Department of Education, you will be considered below half-time status at your institution in the United States.  If you let the grace period elapse during this time, you will not be eligible for another grace period on your Stafford loans when you return to your home institution.  Perkins loans, on the other hand, are eligible for another grace period if you return to school.

How do grace periods affect international students in the U.S.?

International students are not eligible for federal financial loans, but they are eligible for private student loans. If you have a private student loan, you will need to contact your lenders directly to know the length of time and other terms of your loan’s grace period.  Private lenders tend to be stricter than government loan programs, and therefore you might not have a grace period at all.

Can I make a payment on my loan during the grace period?

Yes!  In fact, if you can, you should.  If your loan isn’t accruing interest during the grace period, making a payment goes directly to your principal, which reduces not only how much you will pay overall but also how long it will take to pay the loan in full.

Want to learn more about student loan jargon? Check out our Student Loan Dictionary to help you evaluate your student loan options to help finance your education.

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