When Referring to Student Loans, What is a Grace Period?

How to know your grace period and forbearance times

Main image courtesy of New Jersey Education Association.

Student loan debt can feel intimidating and can sometimes feel debilitating especially for those who cannot find a job after graduating or had to halt their college degrees in order to afford paying for university. The bills start to rack up once you graduate, especially if you have other bills to pay that might take priority over your student loan debt. Thankfully after graduating you get a grace period, which when referring to student loans, is an allotted amount of time before student debt repayments begin. 

Today, more than 43.2 million student borrowers are in debt by an average of $39,351 each. The Department of Education is the primary lender for these loans, also called Stafford loans. 

The federal student loan forbearance paused payments since March 2020 and will continue through May 1, 2022, with no interest accruing during that period. If you graduated during that time, your six-month grace period may have overlapped with the forbearance. The forbearance will not extend or delay your grace period.

The nationwide total student loan debt balance increased by 8.28% in 2020, amidst the pandemic. Since getting in office, Biden has reinforced the CARES act, which has granted relief to a minimum of 20 million borrowers across the nation in the second and third quarter of 2020. It’s estimated that at least 35 million Americans have qualified for student debt relief under the act. 

There has been temporary relief for federal student loan borrowers, but especially for those who are undergoing financial stressors due to the pandemic. A large proponent of Biden's campaign was to alleviate the financial stress associated with student loans. He promised to cancel $10,000 worth of student loan debt per person. As of today, he has only extended the halted payments proposed in the CARES act, but has not officially canceled any student debt. 

calculator and money

When referring to student loans, what is a grace period? For most federal student loan types, after you graduate, leave school, or drop below half-time enrollment, you have a six-month grace period before you need to repay your loans. Photo by Karolina Grabowska from Pexels.

What are the different types of student loans? 

Learning how to navigate is intimidating, especially when you don't know what kind of loans you have taken out. Try to remember back when you started some of the entrance and financial awareness counseling that was offered to you. They should have instructed you on how to finance your repayments, and draw up an estimate of the potential payments. You're usually able to view the repayment options on the Department of Education's website. If you don't know your login, call their help center at 1-800-621-3115 and they should be able to help you navigate getting back into your account. 

Students apply for loans through filling out the Free Application for Federal Student Aid (FAFSA). Each aid package should include grants, scholarships, federal or private loans, work study programs, and a potential out of pocket cost based on your family’s income. The difference, however, is that grants and scholarships don't need to be repaid, but loans do, including the accumulated interest.

Here’s our breakdown of the different kinds of loans and what they mean: 

Direct Subsidized Federal Loans

The interest accumulated on subsidized loans is repaid by the federal government while you’re still a student in undergraduate or graduate school. This also includes during grace periods, and during any deferment periods. Only after the six month grace period post-grad is when the interest you need to repay starts to accumulate, and it increases until the loan is completely paid off. 

Direct Unsubsidized Federal Loans

On unsubsidized loans, you’re responsible for paying for all the interest accumulated directly after taking out the first loan. This includes any interest racked up from while you were still a student. Interest will also continue to build up until the loan is paid in full. 

Direct Parent PLUS Loan

A Parent PLUS Loan is still borrowed from the federal government, but the difference is that the individual student is not responsible for paying back the loan -- the parent is. Your credit will be checked and you cannot have an adverse credit history. Interest accumulates similarly to an unsubsidized loan with a 6.28% interest rate.

Private Loans

Private loans can be complicated, and depend on your credit or your co-signers credit. Not everyone is eligible for a private loan, and the interest accumulated on a private loan tends to be much higher than a Federal Loan. Private loans are often made by independently-owned organizations such as banks, credit unions, and other private organizations. The terms and conditions of those loans depend on who you are borrowing from. Popular private loans are from Discover Student Loans and Sallie Mae, for example. Post-grad jobs that offer student loan forgiveness don’t include private loans. 

open college textbooks

Student loan interest doesn’t start to accrue until after you graduate or halt your studies. Photo courtesy of Pixabay.

When referring to student loans, what is a grace period? 

A grace period is an allotted amount of time before you have to repay your student loans after you graduate, leave school, or drop below half-time enrollment before you must begin making payments. The typical grace period is around 6 months for both private and federal student loan repayments. This grace period gives you time to get financially settled and to select your repayment plan.

For federal student loans, and most private loans, grace periods start when you fall below half-time enrollment. That can happen when you graduate, withdraw, take a gap year or drop classes. Schools have different definitions for half-time enrollment, so check with your financial aid office if you change your class schedule. 

Can you pay student loans during the grace period?

The student loan grace period is helpful if you’re looking for a job or moving. But if you can, taking this opportunity to prevent interest charges from starting to pile up could help you pay your loans off early. 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.

Even if you choose to start paying back the loan early, you're not committed to making payments each month during your grace period. You’re on the hook for the bill only when your repayment term officially starts.

person counting money

Forking up the cash to pay for loans right when you graduate is unrealistic. That’s why the grace period has been given to recent graduates. Photo by Alexander Mils from Pexels.

What happens if you don’t pay your loans? 

Literacy on finances isn't often taught in schools. Most graduates have to take a special course outside of their university’s classrooms to learn more about balancing their personal financial issues. At the end of the day all student loans must be repaid in full. If someone misses a payment on the first day, your loan is targeted as past due or delinquent. This happens even if you don't pay by accident. It's really important to keep track of your status, especially regarding student loans. If 90 days go by and you haven't paid yet, your student loan servicer will contact the three major credit unions and it will affect your credit score negatively. 

Student loans work in the same way that any other loan would work for repayment, and affect your credit score similarly. If you pay them back on time and in the manner in which is agreed initially, then you will be okay. When you miss a payment, the lender can report this to credit bureaus and ultimately, it’s what can negatively follow you for years to come. When your credit score begins to suffer due to these consequences, it can affect your day-to-day life in unforeseeable ways. For instance you can't invest in real estate, including even getting your own apartment under your name. You can't rent a car, or take out any additional loans.

Trying to even think about what happens if you don't pay your student loans can feel really intimidating, especially for people who recently graduated. Managing all of your bills and trying to make sure that your payments are on time can be very stressful. It's difficult to find a full-time job depending on the profession you are looking to go into, as well as based on your personal experience in the workplace. Even though most might think it is very difficult right outside of college, people struggle to pay the student loans for the rest of their lives, with interest accumulating over the years. It's a common phenomenon.

Want More Tips? 

If you’re looking to find more scholarships, or other ways of achieving your college degree for free, look at scholarship search engines online. We recommend searching via the State Department of Education, our Go Financial Aid Facebook and Twitter pages, and free scholarship search engines like Niche, Fastweb, College Board, Scholly, and CollegeScholarships.org. If you’re still looking to make a college decision, check out college selection search engines such as US News and Cappex

Going through college applications, alongside figuring out your financial aid status can be a confusing and difficult process. Grantford's team hopes to provide students in both undergrad and graduate programs with resources to even the playing field. You can meet with us or view our various categories of resources on our website. For annual updates, subscribe to our financial aid advice newsletter.

Liz Anastasiadis
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