Even if you have the job of your dreams waiting for you when you finish school, it takes time to start making money. If you have student loans to pay back, it can be very hard to wait for your first paycheck. Graduates and other people who have stopped going to school don’t have to start paying back their student loans right away. Instead, most loans have a grace period for student loans.
Here, we answer all of your questions about the grace period for student loans, starting with the most important: what is it?
What Is a Student Loan Grace Period?
When you get a student loan, you agree to pay it back with interest and on a certain schedule. A student loan grace period pushes back the date when payments are due. This gives former students more time to find work and get their finances in order before they have to start making full loan payments. Most student loans give you a six-month grace period before you have to start making payments. This gives you time to get settled before you have to worry about money.
Most of the time, the grace period starts when you stop going to school. This includes graduating, dropping below half-time enrollment, or leaving school before graduating.
How long are the grace periods for student loans?
As was already said, most student loans have a six-month grace period. Some loans have grace periods that are longer, some have grace periods that are shorter, and some might not have grace periods at all. How long is the grace period for different types of loans? Here is a brief summary:
- Loans backed by the federal government: 6 months
- Unsubsidized Federal Direct loans: 6 months
- Six months for Federal Direct PLUS loans for graduate students
- Parent Federal Direct PLUS loans: 6 months (must be requested on the loan application)
- Private student loans: It depends on the type of loan and the lender. Undergraduate student loans from College Ave Student Loans have a six-month grace period, and most graduate student loans have a nine-month grace period.
Depending on your plan for paying back the loan, private lenders may want payment as soon as the loan money is sent to you. This means that you may have to pay back the loan before you even leave school. Before you agree to the terms of a student loan, you should always talk to your loan servicer to make sure you understand your grace period and when your lender expects you to start making payments.
How can I get the most out of the grace period on my student loan?
On the surface, the grace period for student loans looks like a break, and many people use it that way. But if all you do is put off your first payments, you might be in a tough spot when the grace period is over. Instead, you should use that grace period to get ready to pay your loan when it’s due.
Here are some tips to help you make the most of the grace period on your student loans:
1. Know exactly how much you’ll have to pay.
When your payments are due, you don’t want them to come as a surprise. During your student loan grace period, it’s important to find out who handles your loan and how much your monthly payment will be. By reaching out to the company, you can make sure they have the most up-to-date contact information so they can send you your monthly statements and fix any problems before they happen.
If you’re having trouble making your monthly payments, talk to the company that handles your loan to find other ways to pay. For example, you might be able to get a payment plan based on your income for your federal student loan. Different lenders offer different ways to pay back loans, so get in touch with your loan servicer to find out what you can do.
2. Get your finances in order
Knowing that you’ll be getting an extra payment every month gives you a good chance to organize your money and make a budget that works. Get a handle on your regular expenses and one-time costs, and make it a habit to save some of what you earn. Then, when your student loan grace period is over and you have to start making payments, it should be easier for you to get used to your new expenses.
If you know how much your monthly payment will be and don’t think it will be hard to pay on time, you might want to set up automatic payments. With autopay, you can be sure that each month’s loan payment is made on time. Most lenders will also cut your interest rate if you set up your loan to pay itself automatically.
3. Think about combining several federal loans into one.
If you have more than one federal student loan, you may want to use the grace period to put all of them under one servicer. The total amount of interest you have to pay won’t go down if you consolidate your loans, but it can make your budget easier if you combine several monthly payments into one. Also, the amount you owe determines how long you have to pay back federally consolidated loans. By consolidating, you may be able to extend the length of the loan and lower your monthly payment, but you’ll pay more interest in the long run. Before you consolidate your loans, you should carefully look at your finances and see if you’ll lose any borrower benefits. Check with your loan servicer to see if you will.
4. Pay back the interest.
During your grace period, you won’t have to make full loan payments that cover both the principle and the interest. However, you should be aware that the interest on your loan is still building up while you wait for your regular payments to start. When the interest becomes capital, it is added to the loan principal, making the loan balance go up. At the end of your grace period, interest is often added to your balance.
During your grace period, if you pay anything toward your loan, you can lower the amount of interest that gets added up. As long as the payments are enough to cover the interest, it won’t add to the balance and won’t “capitalize.” Even if you don’t think you can pay off the loan in full, it’s still a good idea to pay off the interest.
5. Start making payments before they are due.
Maybe the best way to use your grace period from a financial point of view is to act like it doesn’t exist. If you get in the habit of paying off your student loans as soon as possible, you will be in a much better position once the grace period is over.
How to Make it Work For You
The student loan grace period can be a lifesaver if you need time after graduation to get settled and find a job. Just remember that grace periods aren’t always available. Take action during your grace period and use that extra time to get your finances in order, make a budget, and get into good money habits.
Also, keep in mind that your loan servicer wants you to succeed just as much as you do. Talk to your lender about your situation if your income has changed unexpectedly or if you need to change your payment plan. They will probably be willing to do what they can to help you get your finances back on track.