You worked hard, and graduated with your degree. Congratulations! Now comes the really hard part: finding a job and managing your student loans. Luckily, with many loans, you have a window of time between when you graduate and when your payments are due. This window, known as the student loan grace period, gives you time to secure a job and receive a paycheck before you have to worry about your loans.
However, not every loan has a grace period, so payments may be due sooner. Whether you have a grace period and its length depends on the type of loan you take out and your lender.
What Is a Student Loan Grace Period?
With many forms of student loans, you have a grace period after you graduate from college or drop below half-time status. Although it depends on the loan and lender, the grace period is usually six months. If you graduated in May, that means you wouldn’t have to make payments on your loans until November.
While grace periods can be helpful as you transition from going to college to finding a stable job, there is a catch: for most student loans, interest continues to accrue during the grace period. At the end of the grace period, the accrued interest is capitalized, or added to your loan balance, and interest will accrue based on the new principal balance.
For example, say you had $10,000 in student loans. While you were in school and the grace period, your loan accrued $1,200. At the end of the grace period, the interest is capitalized, so your new loan balance is $1,200, and interest will be calculated on the new total.
How Long Are Grace Periods for Student Loans?
Federal Student Loans
If you have federal student loans, grace periods vary by loan type:
- Direct Subsidized Loans: Direct Subsidized Loans have a six-month grace period. Unlike other student loans, the government waives the interest that accrues on subsidized loans while you’re in school and during the grace period.
- Direct Unsubsidized Loans: Direct Unsubsidized Loans have a six-month grace period.
- Grad PLUS Loans: Grad PLUS Loans don’t have grace periods. However, graduate student loans are automatically deferred for six months, so you won’t have to make payments. But, you can opt to skip the deferment to save money on interest.
- Parent PLUS Loans: Parent PLUS Loans don’t have grace periods. But, parents can request a six-month deferment.
Private Student Loans
With private student loans, grace period policies vary by lender and loan structure. Many private loans require students to make payments while they’re still in school, so you never have a grace period. Others allow you to postpone repayment until after graduation. Depending on the lender, grace periods on private loans can range between six and nine months.
On all private loans, interest continues to accrue during the grace period or deferment.
Making the Most of Your Student Loan Grace Period
Your grace period is an opportunity to get your finances in order and develop a plan for repayment without the pressure of due dates. Before your grace period ends, follow these steps to get ready:
1. Identify Your Loans
Your loans can change hands. Since the time you took out your loans, your loans may have changed servicers. You can use the Federal Student Aid Information Center to find federal loans, and look up your credit at AnnualCreditReport.com to find private loans. Once you know which loan servicer is handling our loans, you can create an online account to make payments and view your loan details.
2. Focus on Finding Work
To manage your payments, you need a source of income. Your focus during this period should be on finding a steady source of income in the form of employment or freelance or contractor work. Indeed, SnagAJob, and LinkedIn Jobs are all great places to find open positions.
3. Create a Budget
Managing your money can feel overwhelming, but it’s much easier if you have a budget in place. A budget shows how much money you have coming in and your expenses, and it allots extra cash for splurges or future goals. As a recent college graduate, you may not have a lot of extra income, so look for ways to cut back, such as getting a roommate, reducing subscriptions, or increasing your income with a side gig.
4. Apply for Another Payment Plan
If your payments are too high, you may be eligible for an alternative payment plan. For federal student loans, you may be eligible for an income-driven repayment plan that bases your payment amount on your discretionary income; you could qualify for a much lower payment than you have now.
With private student loans, income-driven repayment plans aren’t an option. But, you may be able to refinance your student loans to change your term or interest rate and lower your monthly payments.
5. Make Payments Early
If you find a job and are financially able, making payments — even small partial payments — during the grace period can be a great idea. You’ll reduce the amount of interest that builds, so less interest will be capitalized. Over time, paying even an extra $25 per month during the grave period can make a big difference.
Managing Student Loan Repayment
Your student loan grace period gives you time to get used to post-college life before you have to make payments toward your education debt. During the grace period, focus on getting a steady source of income and creating a budget so you can manage your money effectively. If you have questions about your loans or want information about your repayment options, contact your lender for help; and if, after that, you still find your monthly payment uncomfortable, explore student loan refinancing.
