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Understanding Your Student Loan Grace Period and How to Make the Most of It

Student Loans | By Ron Hancock

Grace Period for Federal Student Loans

For most federal student loans, you aren’t required to pay on those loans until you graduate, leave school, or drop below half-time enrollment. When your enrollment changes to one of those statuses, you’re said to be in grace, and the clock starts ticking on when your first monthly loan payment will be due. For many federal loans, the typical grace period ranges from six to nine months; however there are exceptions.

Grace Period for Private Student Loans

For private student loans, you’ll need to check with your lender to see if you have a grace period, and find out the details around grace. While some private loans may be in deferment while you’re enrolled full-time in school, others may have payments due beginning shortly after the loan is disbursed.

Use Your Grace Period for These Things

  1. Compile a list of all of your federal and private student loans to understand your upcoming budget. Your list should include all of your loans, amounts, estimated monthly payments (if known), due dates, interest rates, and servicer contact information. Use the Financial Aid Review on the National Student Loan Data System (NSLDS) to locate your federal student loans. You’ll find your private student loans on your credit report (available at annualcreditreport.com). From this list, create a budget that prioritizes your monthly loan payments and other essential living expenses.
  2. Seriously search for that first good job right away. It may take longer than you think, and once you’ve established your budget (in #1 above), the need for a “real job” will be apparent. Get a side hustle or at least some sort of job if it becomes clear it’s going to take a while to find the right role for you.
  3. Keep your debt low. Don’t run up additional debt buying things while your student loans are in grace. The point of this time is to get ahead on your student loans, find a job, figure out your plan, and also…
  4. Stockpile money. This may mean living at home while you save up and pad your emergency fund (ideally six months of expenses, but at least three months’ worth). The longer you can do this and cushion your savings, the better off you’ll be when your loans are in repayment.
  5. Choose your repayment plan(s). With your federal loans, you’ll have many repayment plan options that result in different monthly payment amounts. Use a repayment estimator such as the U.S. Department of Education’s to estimate payments for different plans – and choose the highest monthly payments you can confidently afford to make.
  6. Take advantage of job benefits. If your new employer offers a student loan repayment assistance program, find out about it, get enrolled, and start taking advantage of it as soon as you can.

To Make Payments or Not in Grace

There are some reasons you may want to make payments during your grace period, but there are also instances in which it may make sense not to. Let’s review a few of them.

Focus on Interest First

Your student loans accrue interest during school and/or during grace. When your loans accrue interest and it capitalizes, the interest is calculated and added to your loan amount before your first payment comes due. In those cases, interest for your payments is calculated on top of the new total. While some of your loans may have the interest subsidized, or covered by the federal government, others will not – and you will have to pay that capitalized interest. Essentially, you’ll be paying interest on top of interest. If you have an option to make interest-only payments toward these loans while you’re in school or in grace – or can even make partial or occasional payments – you’ll save yourself lots of money in the long run.

Consider Consolidating or Refinancing for Maximum Impact

Consolidating your loans applies mainly to federal student loans, and refers to combining your federal loans with various servicers and at different rates into a single loan with one payment at one interest rate to just one servicer that you choose from among federal loan servicers. You can retain some of the borrower benefits of federal loans such as income-driven repayment.

Things to keep in mind if you consolidate? You may pay more interest over the life of the loan, and you can’t include private student loans in your consolidation loan. You’ll lose the remainder of your grace period once you consolidate, although you can apply for consolidation and ask for them to hold your application until close to the end of your grace period to process it. But once you’ve combined your loans, you can’t target the highest loan rate for quicker repayment.

Refinancing your loans generally applies to private student loans. It may be done to simplify repayment for you by reducing the number of monthly payments you have and servicers you work with – but a significant advantage it can offer is if you qualify for a student refinance loan with a lower interest rate than the student loans that you currently have. Our calculator makes it easy for you to see the impact refinancing – and the interest you save – may have on your monthly payments and the overall amount you pay.

It may make sense to also include some or all of your federal student loans in a private student refinance loan if you have a steady job you can rely on and solid income that’s substantial enough to cover your payments – and you feel confident you won’t need federal loan borrower benefits such as income-driven repayment. For any federal loans you include in your private student refinance loan, you lose the borrower benefits you had with them prior to refinancing.

Keep in mind that a cosigner can help you qualify for a low interest rate on refinancing – and U-fi From Nelnet offers cosigner release on qualifying loans after 24 on-time monthly payments. This can greatly increase the odds of your qualifying for a competitive rate that may make refinancing your student loans appealing.

If refinancing during grace doesn’t make sense for you at this point, you may want to set a calendar reminder for next year to check and see what your income, credit score, and current student refinance loan interest rates are doing. Evaluating those factors can help you make a decision that may end up saving you hundreds a month or thousands over years – or allow you to pay down your debt much more quickly.

Ron Hancock

Written By:

Ron Hancock is the Regional Director for U-fi From Nelnet and is an expert in many aspects of financial aid, student loans, and debt management. A graduate of the University of Oklahoma, Ron has worked in a number of areas of higher education finance, including positions in a college financial aid office, training and development for a state agency, and most recently as National Manager for Nelnet’s Partner Solutions team. Ron has spoken at numerous financial aid conferences all across the United States.

View all posts by Ron Hancock