You usually do not have to start repaying your loans right away. This “waiting period” after graduation and before repayment begins is known as a “grace period.”
Grace periods can be extended for up to three years (in addition to the standard six months) if a borrower is serving on active duty in the Armed Forces. Repayment begins after the grace period is over. You can only use the grace period once per loan, so if you go back to school after your grace period ends, that loan will not be eligible for a second grace period upon graduation from the subsequent program. New loans will be eligible for a grace period.
Be advised that you lose any remaining grace period if you consolidate your loans. Also be advised that there is not a second grace period if you already used up your original one. For example, if you have an in-school deferment on a loan that entered repayment at an earlier date (before you returned to school) and you graduate, drop below half-time enrollment or withdraw, you will be required to begin making payments right away on the loan because the original six month grace period was already used up.
You have six months to begin repayment on Stafford loans after graduation, or after you leave school or drop below half-time enrollment. Older Stafford Loans may have a longer grace period.
Interest will not accrue while you are in school, and during the grace period for subsidized Stafford loans. The government pays the interest on these loans. This is not the case for unsubsidized loans. If you have unsubsidized loans, you may either pay the interest during the in-school deferment and grace periods, or the interest will be capitalized when repayment begins. Be advised that this grace period “interest subsidy” was eliminated for Direct subsidized loans made on or after July 1, 2012 and before July 1, 2014.
If interest is accruing on your loans during the grace period, you should consider making payments to cover interest. This will help you avoid unnecessary interest capitalization. “Capitalization” is when interest that accrued during the grace period or other deferment is added to the loan principal when repayment begins. Making payments during a grace period is not required, but something to think about if you can afford it.
For loans made for periods of enrollment beginning on or after July 1, 2012, graduate and professional students are not longer eligible to receive subsidized loans. Loans made prior to this date are not affected by this change.
There is no grace period for PLUS loans. Repayment on PLUS Loans generally must begin within sixty days after the final loan disbursement for the period of enrollment for which the loan was borrowed. However, deferments are available for PLUS loans disbursed on or after July 1, 2008. These graduate and professional student PLUS borrowers may defer repayment during the six months after they leave school. The additional six months will automatically be applied when the graduate PLUS borrower requests an in-school deferment.
A parent borrower with loans disbursed on or after July 1, 2008 may defer repayment while the student on whose behalf the loan was taken out is in school. Parent PLUS borrowers may also defer repayment for six months after the student on whose behalf the loan was borrowed is no longer in school or if the parent is also a student, six months after the day that the parent is no longer in school. Parent PLUS borrowers must apply for this deferment.
Because PLUS loans are unsubsidized, interest will accrue during the deferment period.
Consolidating During a Grace Period
You can consolidate during grace periods. This may lead to a lower interest rate on a Direct Consolidation loan, but only if you are consolidating variable rate loans. However, once you consolidate, you lose any remaining grace period. You will generally receive your first bills within 60 days after the new Direct Consolidation loan is made. The good news is that the Department explains on its web site that if any loan you want to consolidate is still in the grace period, you can delay entering repayment on your new Direct Consolidation Loan until closer to your grace period end date. You can indicate this when you apply, and the consolidation servicer will wait to process your application until the appropriate time.