Grace Periods

About Grace Periods

If you have a federal student loan and have finished school, or gone below half-time status, you’ve likely received a six-month grace period. No payments are technically due during the grace period, but payments are accepted (more on that later). The grace period is there to help you have time to start earning income before loan payments are due.

Loan types with six-month grace periods:

• Direct Subsidized/Unsubsidized
• Subsidized/Unsubsidized Federal Stafford Loans
• Some private loans (varies by lender)

Additional Considerations

If you have multiple federal student loans, there is also an option to consolidate loans during the grace period to group loans for one payment and the same due date. Consolidation can be done through the department of education, your loan servicer, or with a private lender. Once a federal student loan has been consolidated to a private servicer, it cannot be transferred back to a federal loan.  Private loans may have lower interest rates, but they don’t have the same options for payment plans, protections, and payment postponements. Loan consolidation should always be looked at from all angles.

Tips to make the most of your grace period:

•  Research repayment options
•  Create a budget and set a plan for full repayment
•  Complete your online account with your loan servicer
•  Update your contact info and preferences with your servicer
•  Set up automatic payments and select a payment date that works for you
•  If possible with your budget, make payments during the grace period to pay the loan down faster and to pay less interest over the life of the loan

Accrued Interest — Interest that has accumulated on a loan but has not yet been paid.

Capitalized Interest — The amount of accrued interest that is added to the loan balance resulting in a new (higher) balance.

Consolidate — Combining multiple loans into a single loan with a single payment.

Default — The failure to repay a loan according to the terms agreed to in the promissory note. May result in legal action, including wage and tax seizure.

Deferment — A set time for a temporary postponement of loan payments. Does not always postpone interest.

Delinquency — A loan status for overdue payments. Extended delinquency can result in loan default.

Discretionary income — The amount after taxes and living expenses used as qualification for some repayment plans.

Forbearance — An option to temporarily suspend or reduce loan payments.

Garnishment — A legal course of action for a percentage of money to be withheld from a borrower’s paychecks, tax refunds, and Social Security Income (SSI) and applied towards student loan repayment.

Grace period — The set amount of time after you graduate, withdraw, or drop below half-time enrollment before you must begin loan repayment. Not all loans have grace periods, but for most federal student loans, the grace period is six months. Confirm with your servicer.

Interest — The cost of borrowing money that is added to the loan based on the rate of the original loan amount.

Interest rate — A set percentage of loan principal that calculates the amount of interest due.

Loan rehabilitation — The recovery of a defaulted loan through required payments over a specific time that reinstates the loan to good standing. Also reinstates loan repayment and postponement benefits.

Loan servicer — Companies that disburse, manage and collect payments on a loan.

Promissory note — A legal document stating the terms of a loan that is agreed to by all involved parties.

Subsidized — A type of student loan that the government partially or temporarily pays the interest that accrues.

Unsubsidized — A type of student loan that accrues interest as soon as the loan is disbursed-including while students are enrolled in school.