One of the most common misconceptions in the world of student loan repayment may be that repayment does not have to start until six months after graduation.
Federal student loans have a grace period, but that period of time often doesn't work the way consumers think. There are six things you may not know about your student loan grace period.
1. The government is looking out for you -- seriously. Most federal loans come with a grace period that's at least six months long, and the government didn't put that in place to make you freak out about how much money you owe them.
Rather, grace periods are a tool meant to help student loan borrowers start off on the right foot. Their intent is to give borrowers some time to find a job and get themselves financially established before their student loan payments come due.
2. Your grace period isn't necessarily a one-time deal. Each federal Stafford and Perkins loan gets one grace period per loan. The grace period kicks in anytime the student borrower drops below half-time status in school. The definition of half-time can vary between schools, so check your school's handbook for further information.
However, grace periods are an all-or-nothing concept. For Stafford loans, if students return to at least a half-time status within 180 days, their grace period remains intact, as if it were never used. The next time they drop below half-time status, they again receive the full six months.
If a student doesn't return to school until day 181, however, that grace period is gone for good. The next time the student drops below half-time status, that loan will go into repayment immediately.
Most students don't drop below half-time status until they graduate, hence the misconception that student loans aren't due for payment until students have that diploma or certificate in hand.
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3. Different loans have different grace periods. Federal Stafford loans receive a six-month period. A Perkins loan goes for nine months and are allowed another, six-month grace period after most periods of deferment.
Graduate PLUS loan borrowers get something similar to a grace period every time an in-school period ends. Borrowers of Parent PLUS loans made on or after July 1, 2008 can ask for the same, but it won't be automatic as it is for other loan types. Federal direct consolidation loans have no such option. Private student loan policies vary, but most do not offer grace periods.
Because of all this, it's common for some borrowers -- especially those who have taken a semester off here and there -- to have some loans in grace status while others are due for payment once they graduate.
4. The amount you owe may not increase during your grace period: Some loans accrue interest while they're in a grace period, but others don't. Check out the chart below to see which is which.
|Loan Type||Accrues Interest During The Grace Period|
|Federal subsidized Stafford loans made on or before July 1, 2012||No|
|Federal subsidized Stafford loans made between July 1, 2012 and July 1, 2014||Yes|
|Federal subsidized Stafford loans made on or after July 1, 2014||As of now no, but don't be surprised if that changes in future federal budget related legislation|
|Unsubsidized Stafford loans||Yes|
|Graduate and parent PLUS loans||Yes|
|Private, state and institutional loans||Likely yes, but each program varies|
5. "No payment due" does not mean "Don't make payments." If you have loans accruing interest during the grace period, this interest will capitalize, meaning it will be added to the principal, when the grace period ends. Any payments made during the grace period, even if they're interest-only, will lower that amount.
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If your loan is not accruing interest during this time, you're essentially causing your loan, at least that part of it, to be an interest-free loan. Remember, there's no set amount of interest on student loans. The sooner you pay them, the less interest you'll pay in the long run.
6. Your benefits don't stop with your grace period. If you've already used your grace period but still need a little time after graduation to find a job, you're in luck. Federal student loans have lots of other repayment options, including postponement for unemployment and lower payment options, to help you manage your loans while you gain your financial footing.
If you think you might need some relief, it's important to call your loan holder sooner rather than later. Some options may not be available for loans already past due.
Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.