Student loans are great financial tools for people who can’t afford to pay for their education outright. As the price of education is increasing, more and more people are finding themselves taking out student loans to cover the costs. Even though student loans can be useful, the interest rates might make them difficult to pay back. That’s where a grace period comes in.

It’s not easy for students to get a job as soon as they graduate. They might need some time to save up money and get on their feet before they’re able to start repaying their loans. And a grace period exactly does that. It allows the student to take their time to get settled and start making payments on their loans.

In this article, we will be talking about everything you need to know about grace periods for student loans. This includes when the grace period starts, how long it lasts, and a few more things. So if you are interested in learning more about grace periods make sure to read the full article.

What is the student loan grace period?

As we mentioned earlier, a grace period is a set amount of time where the student doesn’t have to make any payments on their loans. The grace period usually lasts for six months after the student graduates or drops below half-time enrollment. This means that if you graduate in May, your grace period would end in November.

However, the grace period depends from lender to lender. Some might allow for a longer grace period while others might not offer one at all. You must check with your lender to see what their specific grace period is.

How does the student loan grace period affect your loan payments?

The grace period gives students the time to get their finances in order before they have to start repaying student loan payments. This means that the clock on your repayment term doesn’t start until after the grace period is over. For example, if you have a 10-year repayment plan, the grace period would give you an extra six months before you have to start making payments.

This is helpful because it gives you time to find a job and start saving up money. Once the grace period is over, you’ll be able to make your first loan payment without any stress.

Student loan grace period: Federal student loans vs Private student loans

There are mainly two types of student loans, federal student loans, and private student loans. Let’s see how the grace period differs for each type of loan

Federal student loans:

Almost every federal student loan comes with a six-month grace period. This means that you don’t have to start making payments on your loans until six months after you graduate or drop below half-time enrollment. Here is a list of grace period timelines for federal student loans:

  1. Federal direct subsidized & unsubsidized loans: 6 months.
  2. Federal Stafford subsidized & unsubsidized loans: 6 months.
  3. Federal Direct PLUS loans for graduate students: 6 months.
  4. Federal Direct PLUS loans for parents: 6 months
  5. Federal Perkins loans: 6 months (can be extended to 9 months)

Private student loans:

Private loans are offered by banks and other financial institutions. As these loans are not backed by the government, the grace period will differ from lender to lender. Some might offer a six-month grace period while others might offer less or none at all. You must check with your lender to see what their grace period policy is. This way, you’ll know when you have to start making payments on your loans.

When does the grace period start?

The grace period for federal student loans starts the day after you graduate or drop below half-time enrollment. For private student loans, the grace period will start on the date specified in your promissory note. It’s important to note that the grace period for federal student loans is automatically applied. You don’t have to do anything to activate it. However, for private student loans, you might have to contact your lender to activate the grace period.

Does interest accumulate during the grace period?

The interest will accumulate during the grace period unless you have a Federal direct subsidized loan. This means you don’t need to make any payments on the interest for this loan type until the grace period is over. However, if you have any other type of loan, the interest will start to accrue (accumulate) as soon as you enter repayment.

What would happen if you don’t start making payments after the grace period?

If you don’t start making payments after the grace period, your student loans will go into delinquency. This means that you’re behind on your payments. Once you’re delinquent, your credit score will be affected and you might have to pay late fees. If you’re still delinquent after 270 days, your loans will go into default. This is the worst-case scenario as it will damage your credit score and you might have to deal with wage garnishment.

How to make the most of your grace period?

The best way to make the most of your grace period is to start planning for your loan payments before the grace period ends. This way, you’ll be able to make your first payment on time and avoid going into delinquency. Here are a few things you can do to get ready for repayment:

1. Find a reliable job:

The first and most important thing you need to do is to find a full-time job. This way, you’ll have a steady income to make your loan payments. If you can’t find a job right away, you can look for part-time or temporary jobs to tide you over until you find a full-time position.

2. Plan your repayments:

The next thing you need to do is to start planning your loan repayments. You can use a repayment calculator to see how much your monthly payments will be. Once you know how much you need to pay, you can start budgeting and setting aside money for your loan payments.

3. Create a budget:

Creating a budget will help you track your spending and make sure that you have enough money to make your loan payments. When creating a budget, be sure to include your essential expenses, such as housing, food, transportation, and utilities. You should also include your loan payments in your budget.

4. Consider consolidation or refinancing:

If you have multiple student loans, you might want to consider consolidation or refinancing. Consolidation means combining your loans into one loan with one monthly payment. Refinancing means taking out a new loan to pay off your existing loans. Both options can lower your monthly payments and make repayment easier.

5. Stay disciplined:

And lastly, once you start making your loan payments, it’s important to stay disciplined. This means making your payments on time every month. If you can’t make a full payment, be sure to at least make the minimum payment. By doing so, you can avoid going into delinquency or default.

Final thoughts:

The grace period is a great time to start planning for your loan repayments. By doing so, you can make sure that you make your first payment on time and avoid going into delinquency. Make sure to make the most of your grace period by finding a job, creating a budget, and staying disciplined with your loan repayments.