Going to college can be an excellent experience, but paying your student loans after you’ve graduated is not quite as enjoyable.
For college graduates who have a job lined up right out of school, starting to pay off your student loans right away makes sense. However, it takes some time for many graduates to find work.
Luckily, for those who aren’t ready to repay their loans, most lenders offer a grace period. A grace period sounds as soothing as it is: a period during which you don’t need to start repaying your loans.
Most student loan companies offer a grace period. Here’s everything you need to know.
How long is the grace period on student loans?
Typically, student loan borrowers are given six months off between graduation and when they need to repay their student loans. During this time, you are supposed to secure gainful employment so that you can start making payments on the loan.
Rick Castellano is vice president of corporate communications for the consumer banking and loan company Sallie Mae. He explains that, for undergraduate loans, the grace period is six months. He adds, “Grace periods for graduate school loans vary. For example, our medical school loan offers a 36-month grace period.”
Once you’ve used up your grace period, you may not be ready to start paying your loans. Some lenders will extend your grace period.
However, if that’s not an option, here are a few other things you can do to stave off payments:
Graduated repayment period
Sallie Mae also offers the Graduated Repayment Period, explains Castellano, which lets students make interest-only payments for one year after your grace period ends.
“It’s available for students with a Smart Option Student Loan, Health Professions Graduate Loan, MBA Loan, Medical School Loan, and Dental School Loan, but you will have to request it during a certain time and meet all of the qualifications,” he says.
If you have passed the grace period and the graduated repayment period, there are two other options if you need time off from paying your federal student loans: deferment and forbearance.
If you are having trouble making payments on your student loans, contact your lender and ask about the option of a deferment. This is a time during which you are not required to make payments.
Typically, you will need to explain the reason why you can’t make payments. Any financial hardship is usually enough reason to be approved for a deferment.
A deferment is the best option because you are not typically responsible for the interest accrued during your time off from loan payments.
This is similar to a deferment. But during a period of forbearance, you are responsible for the interest that accrues during those months.
You are usually given the option of paying the interest as it accrues, which would mean making a smaller monthly payment than the amount you’ve been paying each month.
Or, you can simply let the interest accrue and pay it when you resume making payments.
4 factors that can affect the grace period
1 – Change in enrollment
“Grace periods typically begin when a customer graduates or drops below half-time enrollment,” Castellano explains.
2 – Active-duty military
You can extend your grace period for up to three years (in addition to the standard six months) if you are serving on active duty in the Armed Forces.
3 – A PLUS loan
A PLUS loan is a student loan offered to parents of students enrolled at least half-time, or to graduate and professional students at certain institutions. This type of loan is not typically eligible for a grace period.
4 -Loan consolidation
If you decide to consolidate or combine your loans during your grace period, you will lose the remainder of the grace period. However, if the lender delays disbursing the consolidation loan until the end of the grace period, the borrowers may get to keep most of the grace period. Doing this is known as using the “delayed disbursement” loophole.
After the grace period
Once you have to start repaying your student loan, you can consider some options that may reduce your payments. The options open to you will depend on whether you have federal or private student loans, your current credit score, and work history.
Federal student loan consolidation, for example, combines multiple loans into one new loan through the Department of Education. This can make repayment simpler and you may also end up with a lower monthly payment. However, you can only consolidate federal student loans.
If you have both federal and private loans, refinancing may be a smart option. This involves getting a new loan with new terms through a private lender, which could mean a lower interest rate.