Student Loan Grace Period: What To Know & Do Before Repayment Starts

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  • Student Loan Grace Period: What To Know & Do Before Repayment Starts
Author: Joseph Reinke, CFA

As an expert on student loans, I frequently chat with new graduates who have different opinions about their student loan grace period.

I hear some saying, “I’m going to throw every penny at my student loans right away to save on interest.”

Others shrug and say, “I don’t need to stress about my Federal student loans, I’m still in my grace period.”

The most common one I hear, “What is a grace period?”

The new grads itching to start repayments aren’t entirely wrong, but it depends on their individual circumstances and financial goals.

The ones blissfully ignoring their looming repayments? They couldn’t be more off the mark! It’s crucial to understand and strategize for your student loan repayment from the get-go.

Trust me, turning a blind eye to your student loans isn’t a savvy strategy; it’s an expensive error.

In this article, I dive into effective strategies you can employ during your Federal student loan grace period.

What Is The Student Loan Grace Period

Federal student loans have a grace period that occurs immediately after you graduate. You are given six months whereby you are not required to make payments on your Federal student loans.

Each Federal student loan has one student loan grace period. Therefore, if you already used it you do not get another one.

For example, if you received an undergraduate degree and then worked. After a year or two you decided to go to grad school. Post graduation, your undergraduate loans do not get another grace period.

However, you can call your loan servicer and request that they put you on administrative forbearance.

What Happens During The Grace Period

Although you have no monthly payments due, you still need a plan because interest still accrues.

This means every month you do not have a monthly payment, interest will be added to your loan. (Note: This is true for all but direct subsidized loans)

Therefore, you’ll want to have a solid plan which I discuss in the sections below.

The Starting Point: Identifying Your Student Loan Servicer

Identifying your student loan servicer is the first, and arguably one of the most crucial steps in your student loan journey.

Your loan servicer is the company that will send you your bills, answer your questions (Most likely incorrectly), manage your payments, and assist with other administrative tasks related to your student loans.

Now, you may think, “I’ve got this handled! I know who my servicer is.” However, loan servicers are known to trip over their shoelaces occasionally, like sending you into repayment sooner than you should be.

These mistakes can turn your financial world upside down. Therefore, do yourself a favor and double-check your loan servicer’s information. Make sure they’ve got your loans listed correctly, and they’re aware you’re still in your grace period. After all, you don’t want to start your post-grad life with a financial faceplant.

One big item to note for those going for a graduate degree, servicers tend to make the following error. They will mismatch the end of your grace period for Direct loans and the start of repayment of your PLUS loans.

This means when your grace period ends you will have two different due dates for your student loan payments. I explain more about why this happens in the next section.

However, it you come out of your grace period and you have two due dates, its simple to fix. Call your servicer and tell them to reconcile the two dates, i.e. you can tell them to put them on the same date.

Which Federal Student Loans Have a Grace Period

If you have direct subsidized loans or direct unsubsidized loans you’ve got six entire months before the bills start rolling in, i.e. you have a grace period. However, two types of Federal student loans do not have a grace period:

  • ol]:!pt-0 [&>ol]:!pb-0 [&>ul]:!pt-0 [&>ul]:!pb-0″ value=”2″>Parent PLUS loan borrowers, don’t think I forgot about you. If you took out a PLUS loan for your child’s education, you can also request a six-month deferment once they graduate, leave school, or drop to half-time enrollment. Just give your loan servicer a call and request it.

Factors Influencing Your Student Loan Grace Period

Various scenarios can change the dynamics of your grace period. Let’s break it down:

  • ol]:!pt-0 [&>ol]:!pb-0 [&>ul]:!pt-0 [&>ul]:!pb-0″ value=”2″>Back to school — If you decide to hit the books again, enrolling at least half-time before your grace period ends, you get a mulligan! The six-month grace period will be on standby, springing back into action the moment you graduate or lower your enrollment status.
  • Loan consolidation — This one’s a bit like double-edged sword. Consolidate your loans during your grace period and, poof, the rest of your grace period disappears. You’ll need to start repaying as soon as your Direct Consolidation Loan is processed.
  • refinance companies that will honor the remaining months. Therefore, if you are working with one of our experts at FitBUX, be sure to ask if you will still have a grace period if you are looking at refinancing with a specific lender.

What to Do During Your Student Loan Grace Period

Next, I’ll discuss various ways you should take advantage of your grace period to put yourself in a good financial situation.

First Order of Business: Building A Safety Net

It’s a prevalent notion among fresh graduates to kick-start their student loan repayments during the grace period. And why not? It seems like a solid strategy to save some money. However, before you jump on that bandwagon, there’s another crucial step to tackle.

Your first mission is setting up an emergency fund. This money bucket, also known as a ‘rainy day fund’ or a ‘reserve account’, will be your financial lifeboat in choppy waters. Whether it’s a job switch, an unexpected layoff, or a sudden relocation, your emergency fund will ensure you stay afloat.

Accrued Interest: Should I Be Paying It?

For some of you, the grace period might conclude before you’ve had a chance to build your emergency fund. If that happens, don’t let it stress you out.

Transition into your repayment term, stick to the minimum payments, and concentrate on saving as rapidly as you can. As soon as your emergency fund is established, you can then proceed with your strategic student loan plan.

Then there’s another group of you who’ll successfully amass your emergency fund within your grace period. If you fall in this category, you might be wondering, “Should I clear off the piled-up interest on my loans?”

Your course of action can differ based on your repayment plan. Are you planning to pay off your student loans in total or are you considering an income-based repayment strategy?

Student Loan Grace Period & Paying Off Your Loans

Its as simple as 1) Make payments ASAP, 2) Don’t pay the accrued interest, and 3) look into student loan refinancing.

Make Payments ASAP

If you have chosen to pay off your student loans then you’ll want to start making payments during your grace period as soon as you have your emergency fund saved.

This will save you money and get you out of debt sooner.  I will illustrate with an example. We will make the following assumptions:

  1. ol]:!pt-0 [&>ol]:!pb-0 [&>ul]:!pt-0 [&>ul]:!pb-0″ value=”2″>Grace period of 6 months
  2. ol]:!pt-0 [&>ol]:!pb-0 [&>ul]:!pt-0 [&>ul]:!pb-0″ value=”4″>100% of the loan is unsubsidized
  3. If you deferred your loan during the student loan grace period, it would accrue $3,425 in interest.  This means that the $3,425 is added to your loan balance and your new principal balance is $103,425.  Over your ten year repayment period, you would pay a cumulative amount of $143,144.

    To compare, let’s assume you were actually working during your grace period, you had a reserve account, and you could afford to make payments.  Therefore, you started repaying your student loans immediately upon graduating. Your cumulative payment amount over the life of the loan would be $138,404.  In other words, making payments during your student loan grace period would save you $4,739.

    Do Not Pay Your Accrued Interest… Kind Of

    You will be getting notices saying that you have accrued interest.

    You want to make a payment. However, you don’t want to throw it across all your loans which is what happens if you simply pay the accrued interest.

    Instead, you want to target specific loans.

    For example, you have multiple student loans.  You can choose to pay off the highest interest rate loans (or the low balance loan) which will save you the most money.

    Look Into Refinancing Your Loans

    If you are paying off your loans and you have your emergency fund, its time to look into refinancing. Refinancing is replacing one loan with another.  The key is that you’ll want to look into it…you’ll not necessarily do it but you want to look into it.

    Here are reviews of student loan refinance companies.

    Student Loan Grace Period and Income-Driven Repayment Plans

    If you have your emergency fund saved and you are going to use an income-driven repayment plan, start saving for the tax.

    In short, do not make any payments to your loans if you don’t have to if you are using an income-driven repayment plan.

    Do Private Student Loans Have A Grace Period

    Some private student loans have a grace period others don’t. In short, you’ll have to contact your private student loan lender and ask exactly what their policy is. If you haven’t done so already, I’d recommend doing it ASAP.

    Here is a high level view of some private loans that have a grace period:

    Sallie Mae: Some of the private loans Sallie Mae offers have one some don’t. They explicitly state on their website to confirm with this information with them before signing the dotted line.

    College Ave: College Ave offers a six month grace period on all their private loans.

    Lendkey: They also offer a six month grace period.

    Wrapping It Up: Make Your Student Loan Grace Period Work For You

    Now you’re armed with the knowledge to navigate your student loan grace period like a boss! Remember, it’s not just about paying off your loans; it’s about making smart, strategic financial decisions that set you up for success.

    If the road looks a bit foggy, don’t stress! We, at FitBUX, are here to guide you every step of the way. So stop taking wild stabs in the dark and join us for a clear, well-lit journey to financial freedom. You deserve it!

    Ready to make a solid game plan for your student loans? Don’t wait! Sign up for FitBUX today and kick-start your journey to a debt-free future! You’ve got this!


Joseph Reinke, CFA

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About the Author

Joseph Reinke is a Chartered Financial Analyst (CFA) Charter Holder and founder of FitBUX which has helped over 14,000 young professionals on their journey to financial freedom. Joseph has been personally investing since he was 12 years old.

In addition, he has experience in student loans, mortgages, wealth management, investment banking, valuation, stock trading, and option trading. He has been on 100s of podcast and has been invited to 100s of universities to discuss financial planning with their soon to be graduates.

  • […] Have you thought about how much money you need when the semester ends and your loans stop coming in?  Have you thought about what to do during your student loan grace period? […]

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