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Student Loans

What Is a Grace Period for Student Loans?

Six months is the grace period before you have to begin making payments on student loans after graduation, if you fall below half-time enrollment (6 credits or more), or if you leave school altogether.

The grace period is only good one time per loan so if you decide to go back to school after the grace period ends, you will still have to begin to make payments unless you have chosen a deferment option.

All new loans are eligible for a new grace period. If you are serving on active duty in the military the grace period can increase up to three-and-a-half years (that includes the standard six-month grace period) before you have to begin repayments.

It is also worth knowing that if you decide to consolidate your student loans you will lose any remaining time that is left in your grace period.

Types of Federal Student Loans

There are four main types of Federal student loans listed on the U.S. Department of Education website:

  1. Direct Subsidized Loans are available only to undergraduate students that can show they need financial help.
  2. Direct Unsubsidized Loans are available to undergraduate and graduate students without any requirement to show that you need financial help.
  3. Direct PLUS Loans are available to graduate or professional students who are enrolled at least half-time at a school with a program leading towards their graduate or professional degree or certificate, or be the parent of a dependent undergraduate student enrolled at least half-time at that eligible school. Applicants must also show that they do not have an adverse credit history.
  4. Federal Perkins Loans are low-interest student loans and are only available at participating schools for undergraduate and graduate students that show they need exceptional financial help.

Subsidized vs. Unsubsidized Loans

The main difference between a subsidized student loan and an unsubsidized student loan is that the U.S. Department of Education will pay the interest on a subsidized student loan while that student is in school—provided that the student is attending school at least halftime. The government will not pay the interest on an unsubsidized loan.

If you decide to take out a private student loan or an unsubsidized federal loan, then you will pay all the interest even while you are still attending school.

Subsidized loans are available only to undergraduate students, while unsubsidized loans are for both undergraduates and graduate or professional degree students.

Federal Student Loans vs. Private Student Loans

Federal student loans can offer different benefits that private student loans don't include such as fixed interest rates and varying repayment or forbearance plans. Private student loans can also end up costing more than federal student loans as well.

The U.S. Department of Education website is a great resource for students and parents to learn more about financial aid information. This chart below provides a summary of the differences between federal student loans and private student loans:

Federal Student LoansPrivate Student Loans
You will not have to start repaying your federal student loans until you graduate, leave school, or change your enrollment status to less than half-time.Many private student loans require payments while you are still in school.
The interest rate is fixed and is often lower than private loans—and much lower than some credit card interest rates. View the current interest rates on federal student loans.Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay
Undergraduate students with financial need will likely qualify for a subsidized loan where the government pays the interest while you are in school on at least a half-time basis.Private student loans are not subsidized. No one pays the interest on your loan but you.
You don't need to get a credit check for most federal student loans (except for PLUS loans). Federal student loans can help you establish a good credit record.Private student loans may require an established credit record. The cost of a private student loan will depend on your credit score and other factors.
You won't need a cosigner to get a federal student loan in most cases.You may need a cosigner.
Interest may be tax deductible.Interest may not be tax deductible.
Loans can be consolidated into a Direct Consolidation Loan. Learn about your consolidation options.Private student loans cannot be consolidated into a Direct Consolidation Loan.
If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.Private student loans may not offer forbearance or deferment options.
There are several repayment plans, including an option to tie your monthly payment to your income.You should check with your lender to find out about your repayment options.
There is no prepayment penalty fee.You need to make sure there are no prepayment penalty fees.
You may be eligible to have some portion of your loans forgiven if you work in public service. Learn about our loan forgiveness programs.It is unlikely that your lender will offer a loan forgiveness program.
Free help is available at 1-800-4-FED-AID and on our websites.The Consumer Financial Protection Bureau's private student loan ombudsman may be able to assist you if you have concerns about your private student loan.
Source: US Department of Education

Before applying for any type of student loan, make sure to do your research to understand what type sounds like it makes the best sense for you.

All of these loans can be confusing to grasp at first and researching them is time-consuming. However, the time spent to learn about them can save you money in the long run.


Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
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