What Is a Student Loan Grace Period And How Does It Work? – Forbes Advisor

A grace period for student loans is a specific time frame where borrowers can forego their loan payments without incurring any penalties.

The rules about your specific grace period depend on several factors, like the type of loan you have, the school you attended and more.

How Long Is a Student Loan Grace Period?

The student loan grace period for federal student loans begins once the student graduates, leaves school or falls below part-time status.

For most federal student loans, the grace period will last for six months. However, if you have a Perkins loan, you could be eligible for a nine-month grace period—depending on your school’s policy. If you have a Perkins loan, contact your financial aid office and ask them what the grace period is.

Federal parent PLUS loans are the only type of federal loan that does not have a grace period. As soon as the loan disburses, the repayment countdown begins. However, parents can request a six-month deferment, so payments won’t begin until after their child leaves school or falls below part-time status. Grad PLUS loans also have a six-month deferment option.

The grace period for private student loans depends on the lender, but most also offer a six-month grace period. Make sure to confirm the details with the lender. If you were required to make small monthly payments while enrolled, you may still have to make those payments during the grace period.

Can You Extend Your Grace Period?

There are a few ways you can extend the grace period past the six-month mark. If you’re in the military and serve more than 30 days of active duty before the grace period ends, the six-month grace period will begin when you return from active duty service.

If you re-enroll in school at a half-time capacity before the grace period ends, you’ll have access to a full grace period once you leave, graduate or drop below part-time status.

If You Can’t Extend the Grace Period

If you’ve maxed out your grace period and can’t afford your full monthly payments, signing up for an income-driven repayment (IDR) plan is a good option.

IDR plans calculate your monthly payment as a percentage of your income. If you’re unemployed, working part-time or are close to the poverty line, you may have $0 monthly payments. If you have $0 monthly payments, your account will remain current. Plus, if you stay on an IDR plan for 20 or 25 years, your remaining loan balance will be forgiven.

Use the official loan simulator to see what your payment would be on an IDR plan. If those payments are still too expensive, you can apply for deferment or forbearance.

Borrowers who can’t extend their grace period may still be eligible for deferment or forbearance. The main difference between deferment and forbearance is that interest will not accrue during deferment for borrowers with direct subsidized loans. Interest will accrue during deferment and forbearance for borrowers with direct unsubsidized loans and direct PLUS loans.

You’ll have to apply for deferment or forbearance through the Federal Student Aid website. Keep making payments until your request has been processed and approved.

Borrowers with private student loans should contact the lender to find out how to apply for forbearance. Private lenders have less generous forbearance programs, and interest will almost always accrue during that time. Some lenders may only offer forbearance for one month.

Another option for those with private loans is to refinance your loans into a longer repayment term. A longer-term loan will have lower monthly payments, which could be easier to manage.

Should You Pay Student Loans During the Grace Period?

There are three main types of student loans: direct subsidized loans, direct unsubsidized loans and direct PLUS loans. With direct unsubsidized loans and direct PLUS loans, interest accrues during enrollment and any deferment periods, including the grace period.

The interest is then added to your principal balance, resulting in a higher total loan balance and higher monthly payment.

If you choose to pay your student loans during the grace period, you’ill reduce the amount of interest that accrues and is added to your loan balance. However, if you have a direct subsidized loan, making student loan payments during the grace period will not help you save interest.

It’s best to save up at least three months of expenses in your emergency fund before ending the grace period early. A substantial emergency fund may prevent you from relying on credit cards or other high-interest loans in the event of a financial crisis, like a job layoff or unexpected medical emergency.