When Referring to Student Loans what is a Grace Period?
Defining the Grace Period
The Grace Period is the period between your college graduation date and the day you are required to start repaying your student loan. For Stafford Loans, you are required to start repaying the money within 6 months after graduation, or, after you leave school (drop put), or, when your attendance to your selected school fall below what is referred to as half-time enrollment.
Sometimes, Stafford loans have a longer grace period depending on the agreement you had with the loan officers. The interest on your student loan never accrues during the currency of the student’s school semester.
Most loan officers will grant a student the waiting period so that they can look for a job and commence repayment of the student loans.
A grace period can be extended for up to 3 years in addition to the 6 months that are normally granted. This is granted to people who are serving in the armed forces. The repayment will commence after the tour of duty is over. The grace period is applicable once per loan applied. If you decide to go back to school after the elapse of the grace period, the loan will not be granted a second grace period. You will have to start repaying it immediately. Only new loans will be granted grace period.
Note that there is a military program that has all the options of grace periods available to military servicemen as well as a class of civilians who may be affected by national emergencies or war.
For those who opt to consolidate their student loans into one package, they will lose all the grace period remaining on their respective loans. For those who have used up their grace period on their original loan, such loans will not be eligible for a second grace period.
Take an example of the following scenario:
You get an in-school deferment on a loan that you had earlier entered a repayment period before you resumed your studies. You then drop below half-time enrolment, or you graduate, or you withdraw from school. You will be required to start making your student loan repayments as your 6 months grace period had already been used up.
Types of Student Loans and their Grace Periods
The Stafford Loans
The grace period for a Stafford loan is 6 months after graduation, or after you drop below the half-time enrolment or after you leave school. There is a class of older Stafford loans which attract longer grace period.
It is important to note that with subsidized Stafford student loans;
- The loan interest will never accrue during your school years.
- The loan interest will not accrue for subsidized loans during the grace period.
It is important to note that with unsubsidized Stafford student loans;
- You might be required to pay the interest during your grace periods and in-school deferment
- If you do not pay during the grace periods or in-school deferment, then your loan interest will be capitalized as soon as repayment commences. Capitalization is the process of adding the interest that accrued during the grace period to the principal once the repayment begins.
For those who took the student loans after July 1 2012, the interest subsidy was replaced with direct subsidized loans. Always endeavor to pay the interest accruing during the grace period to avoid the capitalization of your accrued interest.
If you can afford paying your loans during the grace period, consider start doing it. Use this loan calculator to help you calculate what you will save if you start paying your loan during the grace period.
Unfortunately for professional and graduate students who apply for loans on or after July 1 2012, they are not eligible for the subsidized loans. For those who applied for the loans before that, their situation has not changed.
The PLUS Student Loans
If you have other options, and are not pressed for money, the PLUS loan is not the best to take up. You will have to start repaying 60 days after the final disbursement of the money. Fortunately, you can get deferments on the loan if you applied for PLUS loan on or before July 1, 2008. The professional and graduate students can apply for deferment for up to 6 months and this deferment will automatically apply should the borrower request and get in-school deferment.
The deferment tool is also available to parents if the student for whom they took the loan is still in school. Parent borrowers may defer payment for a period of 6 months when the student for who they undertook the loan is still in school and if the said parent is a student himself.
Note: Since the Plus loans are not subsidized, interest on the loan will continue accruing during the deferment period.
If you are getting a private student loan, you are well advised to ask what the grace period for repayment is. Sometimes the grace period will be referred to as interim period. Ask your lender when the repayment will begin and the instalments that accrue. Always read carefully the provisions of the Private loan contract. Generally, interest accrues during the grace period. It might not be the case with your loan though – make sure you know. In addition to this, the accrued interest during the grace period will be capitalized, meaning that you once you enter repayment, your principal will be much more than what you took on. To avoid capitalization, try to repay the interest during the grace period.
The Perkins Loans
All the Perkin loan borrowers who attend less than half-time must check with the loan administrators to determine the length of their grace period. Normally, the grace period for a Perkin loan is nine months. During the grace period, the Perkin loan will not accrue any interest.
With student loans, you must understand the grace period so that you can plan your repayment properly. You also must understand whether interest will accrue during the grace period or will start accruing once you enter repayment. You will probably need a student loan during your schooling life. You are encouraged to use either Stafford loans or Perkins loans unless you have already exhausted the limits in both.