Categories: Student Loans

Understanding Grace Periods, Deferment, and Student Loan Forbearance

College Graduates, Get Ready For Student Loans

Hello, new graduates. All your hard work of the past four years has paid off, and you have your degree in hand. Unfortunately, the clock has started ticking. Here are some things that are going to happen concerning your federal student loans very shortly. You will be receiving a loan repayment schedule that will tell you when your first payment is due, how often you’ll have to pay, and the amount of each payment. Your federal student loan may or may not have a grace period that kicks in after you graduate.

  • If you received a Federal Perkins loan, you will need to check with the school that originated the loan.
  • PLUS loans do not have a grace period.
  • Direct subsidized and unsubsidized loans, subsidized and unsubsidized Federal Stafford loans have a six-month grace period.

According to US News and World Report you should also be aware that some loans accrue interest during the grace period, while others do not. Your grace period can also be altered by beginning active-duty military service, returning to school before the end of the grace period, and consolidating your student loans during that time. In both of those cases, you receive the full-time grace period either after you return from active duty or when you stop attending school as a full-time or half-time student. A word of warning, consolidating your loans with a direct consolidation loan immediately terminates the grace period, and you begin repaying immediately.

The six-month grace period was designed to allow a student to exit school and give them enough time to find a job and become financially established. Just because you have a six-month grace period before you need to start paying doesn’t mean that you should not get your finances in order and prepare to pay. You may be assigned a payment plan at the beginning, but you have the option to change that plan. You will want to study the repayment plans very closely, as some of them have higher payments for shorter periods of time and lower payments for much longer periods of time others are based on your income. Spending a little extra money out of pocket now can save you a great deal later.

In addition to grace periods, you can also apply for deferment or for student loan forbearance. Deferment means that repayment of principal and in some cases even interest is deferred temporarily on your federal student loans. Conditions do apply and not everyone will be eligible for deferment.  Forbearance only applies if you do not qualify for a deferment. You will have to apply to your loan servicer, and you may be able to suspend your payments or reduce them for up to one year. However, interest will continue to accrue on all loans whether subsidized or unsubsidized. There are certain conditions which can trigger mandatory forbearance, otherwise the forbearance is entirely at the discretion of the lender. Even if you have applied for a deferment or forbearance, you must continue making payments until either one is granted.

If you’re having trouble making heads or tails of all of this, call our office and make an appointment for free consultation. We can get you started out on the right foot with all of your student loans.

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Published by
Chad Van Horn

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