A student loan grace period is a term during which you’re not obligated to make monthly payments. But even if you’re off the hook for a little while, paying at least the interest that’s accruing on your debt during your student loan grace period can save you a lot of money.
Here’s what you need to know about how a grace period for student loans works and how to make the most of yours.
What is a grace period for student loans?
When you first take out a student loan, you typically don’t have to start making payments immediately — there are, of course, some exceptions, which we’ll cover in a bit.
In many cases, your student loan payments are deferred until you graduate, leave school or drop below half-time enrollment. But even then, you’ll typically get a grace period, during which you’re not required to make payments. The length of your grace period depends on the type of student loan you have:
|Loan type||Length of the grace period|
|Federal Direct Subsidized and Unsubsidized Loans||6 months|
|Federal Stafford Subsidized and Unsubsidized Loans||6 months|
|Federal Direct PLUS Loans for graduate and professional students||6 months|
|Federal Direct PLUS Loans for parents||6 months, if requested|
|Federal Perkins Loans||9 months|
|Private student loans||Can vary by lender and loan type|
Your lender or loan servicer will provide you with a repayment schedule that states when your first payment is due. If you’re thinking about private student loans, talk to the lender or read the fine print to make sure you understand when you need to start making payments.
Also, plan to set up your monthly payments as soon as possible, preferably by connecting your checking account to your student loan account.
When do you start paying student loans?
If your student loans have a grace period, you don’t technically need to make any payments until that term ends. But in most cases, interest will accrue during your student loan grace period — the only exception is if you have a Direct Subsidized Loan.
If you don’t pay the interest as it accrues, it’ll capitalize and be added to your total loan balance at the beginning of your repayment term.
For example, let’s say you have $25,000 in student loans with a 6% weighted-average interest rate and a six-month grace period. During your grace period, $750 worth of interest will accrue and get added to your loan balance. That extra amount will increase not only your monthly payment by more than $8 per month but also the total interest you pay by $286.
That’s not a lot, especially over a 10-year repayment term. But if you owe such a large sum, you likely don’t want to pay the lender or servicer any more than necessary.
Options to consider with your student loan grace period
Depending on your financial situation and the reason your grace period started, here are some things to consider doing with the time you have.
- Start making payments: If you already have a full-time job and can afford to make the full monthly payments on your student loan, starting before the grace period ends can reduce the balance used to determine your monthly payments for your actual repayment schedule. It can also save you money on interest in the long run. If you can’t make full payments, try to pay the accrued interest at the very least.
- Plan to get back into school: If your grace period started because you dropped under half-time enrollment or you’re taking a break, you might not be in a financial situation to start making payments on your debt. If this is the case, work on getting back into school with at least half-time enrollment to get your loans back in deferment.
- Look at interest rates for refinancing: If your interest rates are relatively high, you don’t have to wait until your grace period is over before you can refinance them with a lower-interest loan. Use Purefy’s rate comparison tool to compare multiple lenders in one place and determine whether you can save money by refinancing your existing loans.
- Look into forbearance options: If you’ve graduated but don’t yet have a full-time job, talk to your servicer about whether you can apply for forbearance until you can get on your feet financially. The last thing you want is to start off on the wrong foot with late payments or even default.
- Think about applying for federal benefits: If you have federal student loans, you have access to certain benefits that private student lenders don’t offer. If you aren’t sure your income is going to be enough to make your full monthly payments, for instance, consider applying for an income-driven repayment plan. And if you’re planning to work for a government agency or eligible nonprofit organization, you might want to apply for the Public Service Loan Forgiveness program.
The grace period for student loans can vary, depending on the type of loan you have. But if you have one, use that time to set yourself up for success with your student loan repayment plan.
The bottom line
So when do you have to start paying student loans? If yours don’t have a grace period, your repayment plan begins immediately. And if they do have one, you don’t need to make payments until the grace period is over. But even if you don’t need to start paying down your debt now, it’s a good idea to pay off the accrued interest to avoid increasing your total balance.
In other words, take advantage of the grace period student loans offer to get your budget in order for full payments, but don’t let it lead to a higher balance. If you can afford to make full payments during your grace period, getting a head start can help you save even more.