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When referring to student loans, what is a grace period?

I need help understanding the benefits of taking a student loan with a grace period. I wanted to pursue a Master’s degree but my parents won’t finance it. So I have decided to take out a student loan. When I was looking for education loans on Google, I came across names like Stafford Loans and PLUS loans. It’s mentioned that the Stafford Loan offers a grace period of six months while the PLUS loan does not allow any grace period. When referring to student loans, what is a grace period? Is it helpful in paying back student loans? What does ‘defer student loans’ mean?

Kristi Hammond

in Student Loans

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Donald Ward on January 26, 2018

Well, I understand your concern. A grace period in the case of student loans means you do not need to start repaying your loans immediately after graduation. There will be a waiting period for you before your repayment begins. This grace period varies for different loans and generally you can use the grace period only once per loan. In the case of Stafford loans, you are entitled to enjoy a six month grace period after your graduation. That means your repayment starts six months after your graduation. The beauty of this grace period is that you will not be charged any interest for this grace period if your loan is subsidized but you will need to pay interest if the loan is unsubsidized. If you are planning to take out a PLUS loan, you can’t expect a grace period. You will need to start repayment within two months of receiving the final disbursement.

Now, there are Perkins loans which allow a grace period of nine months without any interest. Most other private loans for education will allow you a grace period but they will charge interest for this grace period and this interest will be added to your principal loan balance when the repayment of student loans begins.

It seems that you are confused between student loan deferment and grace period. While a grace period is automatically allowed to you on a loan and you do not face any penalties for not paying, a deferment usually requires you to submit additional application and evidence to show your inability to repay. If you have taken a federal student loan, it is possible for you to automatically enjoy the facility of deferment if you enroll in a college or university and do at least half-time study. In other cases, you will have to produce documented evidence but the final decision comes from the lender. That means there is no guarantee that your request for deferment will be approved. While you do not need to pay interest for the deferment period in a subsidized Stafford loan, you will be charged interest for the deferment period in an unsubsidized Stafford
loan.

Remember, you are allowed to make payments during both grace period and deferment though it is not compulsory. However, it is a wise idea to do so to avoid issues like capitalizing. In addition, this helps avoid problems like increased installments after the deferment or a balloon payment when the original loan period ends.

Charles McAleara year ago

I think deferment is more dangerous in education loans. There is no guarantee that they will approve your request for deferment in most of the cases, and, even if your request is approved, chances are that you will pay interest for the same in some way. I’d say you should go for a loan
with grace period and still start paying back your student loan immediately if you can afford it. In my opinion, federal student loans are better in this regard. Even if your grace period is used up, there are other ways to help you in case of difficulties, like postponement for unemployment. I had a federal student loan during my studies but I was not able to start payment after the grace period as I couldn’t find a job within that time. I communicated with my lender and they helped me utilize the option of postponement for unemployment. So if you face financial hardships unexpectedly, don’t hesitate to talk to your loan lender.


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