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Student loan grace periods: How to maximize your time

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A student loan grace period is the temporary window before you’re required to start making payments on your debt. Grace periods usually last six months after you graduate or drop below half-time enrollment. Once your grace period comes to an end, you’ll begin making student loan payments in full. Here are some ways to maximize your grace period before repayment begins.

How loan grace periods work

Grace periods are built-in breathing room before you must start your loan repayment. For students, grace periods give you the time to find employment and start earning income in order to afford your monthly loan payments.

When do I have to start paying back student loans?

For student loans that offer grace periods, the clock starts ticking once you graduate, drop below half-time enrollment or otherwise stop being a full-time student. The grace period typically lasts six months, though some private student loans have grace periods that extend up to a full year. Private student loan lenders may also offer longer grace periods for students who decide to enter a fellowship or residency.

Does my student loan have a grace period?

Whether you have a student loan grace period depends on the kind of loan you took out.

Federal student loans

Federal loans with a six-month grace period include:

  • Direct Subsidized Loans.
  • Direct Unsubsidized Loans.
  • FFEL Program Loans.

Exceptions to the six-month grace period include:

  • Federal PLUS loans. Repayment of federal PLUS loans begins once all of the money has been disbursed. However, graduate and professional students receive an automatic six-month deferment, and parents may request a six-month deferment after their child graduates, leaves school or drops below half-time enrollment.
  • Federal Perkins Loans. For students attending school half time or more, the grace period for Perkins Loans is nine months. If you attend less than half time, you’ll need to contact the school’s financial aid department to find out about the length of the grace period. (The school, not the federal government, acts as the lender for Perkins Loans.)

Private student loans

Most private lenders offer grace periods for student loans, typically lasting six months. In certain cases, a private lender may offer a six-month grace period for undergraduate loans and nine months for students pursuing professional graduate degrees in such fields as law, medicine and business.

Get the most out of your grace period

Once you check the terms of your loan and confirm your first payment’s due date, the real work begins. Follow these tips to prepare for the end of your student loan grace period and beyond.

Measure debt against income

Multiply your monthly student loan payment by 12 and subtract that number from your yearly salary (or your desired salary if you’re still looking for a job). The result will give you a general idea of your student debt obligation compared with your income. Set your budget accordingly.

Make a loan repayment plan

The end of your grace period could come as a shock if you’re not prepared for your full monthly payments. Remember, payments include both your principal amount and any interest charges on that amount, so it’s critical not to fall behind — if you do, you’ll accrue more interest on your loan. Before you start making payments, create a loan repayment plan.

If you have federal student loans, you may choose to start on an income-driven repayment plan to keep your payments low. If you have private student loans, you may decide to make multiple payments each month or adjust your budget in order to pay down your debt faster.

Start saving now

Six or nine months from now may seem far away, but don’t get complacent. You may even want to set up a separate checking or savings account and make it off-limits for any other expense.

Get a head start if you can

Just because you don’t yet have a payment due doesn’t mean you have to wait. For example, many student loans start accruing interest during the grace period. You can chip away at your overall debt by paying interest immediately. You may also decide to ask the lender if you can make payments on the principal during the grace period.

Utilize your job benefits

If you’ve landed a job and you’re immediately eligible for benefits such as health insurance or 401(k) savings, consider choosing the options that will have the least impact on your take-home pay. For example, you could opt for a low-cost “bronze” dental plan rather than the more expensive “gold” plan. You can always reenroll for more robust benefits when you’ve reduced your debt.

Manage all your debts

If you have other types of debt, such as a car loan or credit card balances, you’ll need to keep those under control too. Many experts see a debt-to-income ratio (DTI) above 40 percent as a warning sign of unsustainable debt. You can use a DTI calculator to see where you stand.

Consider consolidating or refinancing your student loans

You may be approaching your grace period with multiple different types of loans with different interest rates, which could make it hard to manage your monthly payments. In this case, you might consider refinancing or consolidating once your grace period ends.

Consolidation is the process of combining multiple federal student loans into one Direct Consolidation Loan, giving you one monthly payment. Refinancing is when you pay off some or all of your loans (both federal and private) with one new private loan. The benefit of refinancing is that you may be able to get a more affordable interest rate on your loans, especially if you started college when interest rates were high. The downside is that you’ll lose the ability to utilize federal programs like income-driven repayment plans.

The bottom line

Take some time to study the terms of your student loan grace period and make a plan for the payments that will inevitably start coming due. A student loan grace period is a great opportunity to start earning income and thinking through how best to pay off your student loans.

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Written by
Barry Bridges
Senior credit cards editor
Former Senior Editor Barry Bridges has been writing about credit cards, personal loans, mortgages and other personal finance products since 2017. Before joining Bankrate, he was an award-winning newspaper journalist in his native North Carolina.
Edited by
Student loans editor