Loan Grace Period

Grace Periods Are Special to Student Loans

One of the essential features that sets student loans apart from standards private loans is that they often include a grace period. This is one of the features to look for when shopping for a loan. A grace period enables you to postpone beginning repayment until months after you have graduated. Especially in the current job market for new graduates, a grace period give needed relief.

All Federal Student Loans Have This In Common

Except for Parent PLUS and Grad PLUS loans, which require some degree of immediate repayment, all Federal Loans, subsidized or unsubsidized, have a grace period. For Stafford Loans, the grace period is six months from the date of graduation, leaving school, or dropping below half-time enrollment.  For the Perkins Loan, the grace period is nine months from the date of graduation, leaving school, or dropping below half-time enrollment.

Private Student Loans and Grace Periods

While most private student loans include a grace period, many do not. For instance, Sallie Mae’s Smart Option Loan requires that students repay interest accruing on the loan while still in school. It is absolutely essential that you look for a student loan with a grace period when you are shopping around, and that you very clear on how long the grace period lasts.

In Your Grace Period

During your grace period, you will receive repayment instructions, along with the due date of the first payment. Once repayment has started, payments are due on a monthly basis. Obviously, the grace period is intended to give new graduates some time to find a job that is going to support them and make loan repayment possible. This should be your focus during the grace period.

Sometimes The Grace Period Is Not Enough

New college graduates are one of the groups that are finding is hardest to find meaningful paying employment in this economy. It is entirely possible for graduates to be unemployed or underemployed by the end of a six- or nine-month grade period. If that is your situation, you can get a deferment or forbearance on your Federal loans, usually for another six months to a year. Private lenders usually offer at least one deferral after graduation. You can also defer repayment if you go on to graduate school.

Be sure that your deferment is actually granted before you stop making payments. If your deferment is pending but has not been granted, you still owe your monthly payment. This is important because credit bureaus interpret missed student loan payments as a major indicator of financial distress, and they will ding your credit score accordingly.

If you have a subsidized student loans, you are not charged for the interest that accrues during your grace period.  If your loan is unsubsidized, the interest that accrues during the grace period will be added to your principal. You are free to pay just the interest during your grace period if your situation allows for that. If you can do that, it could save you meaningful money on your loan repayment in the long run.

Consolidate If You Need To

Towards the end of the loan grace period, many students decide to consolidate a number of their separate loans into one lump loan.  For Federal student loans, this is generally a fairly simple process. Details are at www.loanconsolidation.ed.gov. There is no consistent standard for private loans; check with your lender to see if they allow loan consolidation, and on what terms. You should note that you cannot consolidate government loans with private loans.

Consolidation will lower your monthly payment and it will provide you with just a single bill to pay, instead of a different one for each loan. On some private loans, it also fixes the interest rate. Consolidated government loans also set your loans at a new fixed interest rate.