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What Is a Grace Period?

You don't have to make student loan payments during your grace period, but pay off accrued interest to keep your balance from ballooning.
June 15, 2018
Loans, Student Loans

A student loan grace period is a stretch of time, after you’ve graduated or left school, when you’re not required to make payments.

Here’s how much time you’ll have before repayment starts, depending on the loan type:

  • Federal direct subsidized and unsubsidized loans: Six months
  • Federal direct PLUS loans for graduate students: Six months
  • Federal direct PLUS loans for parents: Six months, if requested on the loan application
  • Federal Perkins loans: Nine months
  • Private loans: Varies by lender. Some offer a post-graduation grace period of six months, while others require payment as soon as the loan is disbursed. Check your loan agreement or ask your lender if you’re unsure.

Most importantly, unless you have federal direct subsidized loans, interest will accrue during your grace period. That means you’ll have a bigger balance to repay at the end of it. Here’s how to make the best use of your grace period..

What to do during your student loan grace period

The grace period may be a welcome breather if you’re in the process of looking for a job or moving. But if you can, take this opportunity to prevent interest charges from ballooning, which will help you pay off student loans fast. Try these options:

Make monthly payments as though there’s no grace period

This will help you budget around student loan payments from the start, preventing an unhappy surprise when your bill eventually comes due. Federal student loan exit counseling, which happens around graduation, will show how much you owe per month. If you’re not sure, contact your student loan servicer or private lender. But know that you’re not committing to making payments each month. You’re on the hook for the bill only when your repayment term officially starts.

Pay off interest before it capitalizes

Can’t afford a full payment right now? Pay at least enough to cover the monthly interest that accrues. Or, before your grace period ends, pay off the accrued interest before it’s added to your balance, or capitalized. You’ll most likely receive an email or letter from your student loan servicer letting you know this is an option.

» MORE: Use a student loan calculator to see how much interest you owe

Unless you have subsidized loans, interest will accrue during your grace period. That means you’ll have a bigger balance to repay at the end of it.

Here’s how preventing capitalization can benefit you. An undergraduate dependent student who borrowed the maximum amount of unsubsidized federal student loans between 2014 and 2018 would owe $27,000. If that student paid off accrued interest before it capitalizes, he or she would pay $46 less per month throughout the 10-year repayment term.

 Pay off interest during grace periodDon’t pay off any interest; let interest capitalize
Total owed when grace period ends
$27,000$31,565
Monthly payment
$274.44
$320.84

Whether or not you’ve paid off accrued interest, the end of your grace period signals the start of a crucial period in your financial life. These resources can help keep you on strong footing while repaying student loans:

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