Is there a grace period for student loans? In many cases, yes. A loan with a grace period gives you a temporary window before you’re required to start making monthly payments — the key word being temporary.
As a student preparing for life after graduation, you already have a formidable to-do list. If that list includes paying off student loans, consider some advice on how to maximize the grace period before repayment begins.
Understanding loans and grace periods
In a perfect world, your student loan servicer covered these details with you when you first took out the loan. If not, or if you’ve simply lost track of the specifics, check the terms of your loan. In the meantime, here’s a quick refresher on the basics of student loan grace periods:
When do I have to start paying back student loans?
For 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.
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. Most federal student loans offer grace periods, although they’re less common with private loans.
Federal student loans
Federal loans with a six-month grace period include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
Exceptions to the six-month grace period include:
- Federal PLUS Loans. Repayment of federal PLUS loans begins once all the money has been disbursed, although you can apply for deferment.
- 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
Some 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.
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. Also, ask the lender if you can make payments on the principal during the grace period.
Economize at work
If you’ve landed a job and you’re immediately eligible for benefits such as health insurance or 401k 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 re-enroll 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.
Stay in good graces with your student debt
You may be nearly done with school, but homework isn’t done with you. 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.
It may help to think of a student loan grace period as both an opportunity and a privilege. You want to take advantage of it but not abuse it.