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Understanding Student Loan Grace Periods, Deferment, and Forbearance

Grace periods are the time between graduation and when you need to start making payments on your student loans. Deferment allows you to stop making payments so you can return to school. Forbearance stops the payment requirement due to hardship. But caution is needed when using each of these options. Interest is most likely accruing while you are not making payments.

Understanding Student Loan Grace Periods, Deferment, and ForbearanceWhen you graduate from college or graduate school, it’s only a matter of time before your student loans enter the repayment stage. Know when you need to start repaying your student loans—and when you can temporarily stop making loan payments—before your first loan become due.

Federally-backed student loans vs. private student loans

While there are many types of student loans, they can be generally divided into two categories: federally-backed loans and private loans. Federally-backed loans generally carry lower interest rates than private loans, but students can only borrow so much in federally-backed loans each year, meaning many students turn to private loans to fill the gap.

Understanding what type of loans you have—and the differences in repayment requirements—can save you from missing payments, damaging your credit, and paying additional interest and fees.

Student loan grace periods

When it comes to student loan repayment, federally-backed loans and some private loans may come with a grace period of between six and twelve months. That means that you will not owe your first loan payment until six-twelve months after your graduation date. Some private loans, however, will not have a grace period, meaning you’ll need to make your first payment as soon as a month after you graduate.

Student loan grace periods are designed to give graduates time to find a job. If you get a job before the grace period ends, you may wish to start making loan payments anyway to get into the habit of making the payments and to avoid additional accrued interest.

Even if you don’t start paying your loans early, it’s a good idea to determine what your loan payment will be and start setting that money aside. Use it to first pay down any credit card debt you may have and next to begin to save an emergency fund.

Student loan deferment

In certain cases, you may be eligible to for student loan deferment. Often, you may defer payments on your student loans if you go back to school full-time (i.e. to graduate or professional school), become unemployed, become disabled, or face another serious financial hardship.

Student loan forbearance

If you do not meet the criteria for a deferment, but are still having trouble making ends meet and paying your student loans, you may be able to get a student loan forbearance for a short period of time.

Contact your lenders to discuss deferment or forbearance options. (Note: If you’re going back to school, your student loan companies don’t know that until you tell them! If you stop making payments before confirming that your loans have been successfully deferred, your credit report could be in for a nasty surprise!)

Pros and cons of putting off payments

Make sure you understand both the advantages and disadvantages to student loan grace periods, deferment, and forbearance. With a few exceptions, interest continues to accrue during these periods. So while these programs let you get through your education without worrying about making loan payments, you do pay a price for the convenience.

Often, you can elect to make small interest-only payments on deferred loans. You won’t make progress on the principal, but the new interest will not capitalize over time.

If you’re out of school and working in certain high-need, low-paying fields, you may be eligible for a number of student loan forgiveness programs. Unlike deferment or forbearance which simply postpone your loan payments, forgiveness programs will actually cancel some or all of your loan!

Have you had student loans in deferment or forbearance? Was it a smooth process? Any words of wisdom for others going back to grad school or trying to get out of a rough patch financially?

Published or updated on August 28, 2008

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


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  1. Marcy Cardenas says:

    My sister and I are in the process of buying a house and are loans are only deferred for 6 months after we graduate but my lender needs them to be for 12 months after graduation. We called Sallie Mae and they said they could only defer them for 6 months at a time. Do you have any suggestions. If we cannot get a deferrment than we do not qualify for this home loan. :(

    • Jay says:

      I’ver just run into this same problem – only with SALLIE MAE! My other lenders have no problems at all extending my deferrments. I’ve even had to reschedule my closing date as I try to work through all of this. What did you have to do to resolve your situation? Did you try doing a forbearance for a year? It’s terrible to get all the way to the end of this long journey, just to get stumped by this…

  2. SP says:

    Federal loans actually can be deferred if you are a half-time student (as defined by your university). Also, subsidized loans will not generate interest.

    I had my loans in deferment for one semester, and they are about to go into deferment again. Very excited for that.

  3. Apply for a forbearance or deferment before you miss a payment. Be realistic about your finances, rather than optimistic. A forbearance or deferment will not hurt your credit rating the way missing regular payments will.

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