Background

Grace periods were created to give borrowers breathing room after school so they can find work, budget, and set up repayment. Federal policy standardizes many aspects of that window, but private lenders aren’t bound by the same rules—so terms vary widely (Federal Student Aid).

How it works — federal vs. private

  • Federal loans: Most Direct Subsidized and Direct Unsubsidized loans have a six‑month grace period that begins on the date you graduate, leave school, or drop below half‑time. Direct Subsidized loans do not accrue interest during in‑school and the grace period in most cases; Direct Unsubsidized loans do accrue interest during these periods and that interest can be capitalized when repayment begins if not paid (Federal Student Aid).
  • PLUS loans: Graduate PLUS and Parent PLUS loans generally do not have the automatic six‑month grace period. Parent PLUS borrowers can request deferment while their child is enrolled at least half‑time; graduate borrowers should review their promissory note or contact their servicer for timing details (Federal Student Aid).
  • Private loans: Each private lender sets its own terms. Some offer 6–12 months of deferment; others require immediate repayment or interest‑only payments while you’re in school. Read the promissory note and ask the lender for exact dates and whether interest accrues during any grace period (Consumer Financial Protection Bureau).

Key mechanics to watch

  • Interest accrual: If interest accrues during the grace period (common with unsubsidized and many private loans), unpaid interest will either be added to principal (capitalized) when repayment starts or remain as separate unpaid interest depending on your loan contract. Capitalization increases the balance on which future interest accrues.
  • Start date: Grace typically begins on the school separation date reported to your servicer. If you return to school, the grace period rules can change.
  • Optional early payments: You can make voluntary payments during the grace period to lower interest costs once repayment begins.

Real‑world examples

  • Federal example: A borrower with Direct Unsubsidized loans has six months after graduation before required payments. Interest accrues during those six months and, if left unpaid, will be capitalized at repayment start (Federal Student Aid).
  • Private example: A borrower with a private loan discovers their contract requires immediate interest payments once disbursed; there’s no built‑in post‑graduation grace window, so the borrower must budget for payments while job hunting (Consumer Financial Protection Bureau).

Who is affected / eligibility

  • Most federal loan borrowers: Eligible for the standard six‑month grace for Direct Subsidized and Unsubsidized loans.
  • PLUS borrowers: Usually no automatic six‑month grace; check servicer guidance.
  • Private loan borrowers: Terms vary—confirm with the lender.

What to check and next steps

  1. Read your promissory note and the servicer’s repayment schedule. The promissory note is the legal document that lists your grace period and interest rules.
  2. Contact your loan servicer or private lender early—don’t wait until the last week of the grace period. If you can’t find your servicer, use Federal Student Aid to locate it (studentaid.gov).
  3. Consider paying interest during the grace window on unsubsidized or private loans to reduce capitalization.
  4. If a private loan has no grace period, build a short emergency fund, ask the lender about forbearance or interest‑only options, or compare refinancing once you have steady income. See our guide to private student loan refinancing for trade‑offs of switching to a private lender.

Practical tips

  • Use the grace period to set a realistic monthly budget and enroll in autopay to qualify for lower rates from some servicers.
  • If you plan further schooling, confirm whether re‑enrollment restarts an in‑school status that suspends repayment.
  • For federal loans, explore income‑driven repayment plans and consolidation before payments start if you expect low initial income.

Common mistakes and misconceptions

  • Assuming every loan has a six‑month grace: Not true for PLUS and many private loans.
  • Believing interest never accrues: Subsidized loans may not accrue interest during grace, but unsubsidized and most private loans do.
  • Waiting to contact the servicer: Proactive contact avoids surprise payment due dates and allows time to arrange alternatives.

Where to learn more

For federal rules and the official definitions see Federal Student Aid (https://studentaid.gov/). For consumer‑facing guidance about private loan terms and borrower rights see the Consumer Financial Protection Bureau (https://www.consumerfinance.gov/).

Related FinHelp articles

FAQ (brief)

  • Do I owe interest during the grace period? It depends. Subsidized federal loans typically do not accrue interest during grace; unsubsidized and many private loans do.
  • Can I start payments early? Yes—early payments reduce total interest but won’t change the official start date of required payments unless you contact your servicer.
  • When does grace end? Usually when the six‑month clock expires, but verify your exact date with your servicer.

Professional disclaimer

This article is educational only and not personalized financial advice. For help specific to your loans, contact your loan servicer or a qualified financial advisor.

Authoritative sources