After you graduate, leave school or drop below half-time enrollment, you are entitled to a grace period. During this time—which is typically six or nine months, depending on the type of student loan you receive—you are not expected to make payments. For most loans the grace period may not be renewed once fully used.

The interest on subsidized loans is paid by the federal government during your grace period.* You are responsible, however, for all the interest on unsubsidized loans. The unpaid interest is capitalized—added to the loan principal—at the time of repayment. Monthly payments begin the day after your grace period ends; at that point, your first payment is due within 60 days.

*If you receive a Direct Subsidized Loan that is first disbursed between July 1, 2012 and July 1, 2014 you will be responsible for paying the interest that accrues during your grace period; the interest will be added to your principal balance.

Below are the grace periods for the following loans:

Loan Type Grace Period
Federal Stafford Loans

6 months, one-time

Federal Graduate PLUS Loans (before 7/1/2008) N/A
Federal Graduate PLUS Loans (after 7/1/2008) 6 months, one-time
Federal Perkins Loans 9 months, 6 months-renewable after each deferment
Federal Consolidation Loan N/A

HPSL, LDS, PCL, Institutional Loans

Institutional Loans

12 months, one-time

 

Varies by loan


What is Capitalization?

Capitalization is the unpaid interest accrued on the loan during the school year or during a deferment or forbearance period. When the loan enters repayment status, the interest is then added to the principal amount.

If you opted out of paying the capitalized interest while in school, your monthly loan payments can be considerably higher.

Private loans may be capitalized more frequently.

Example:

Jack paid the interest—totaling $1,485—while he was still in school. Kate made no payments, so the total accrued interest of $1,485 was capitalized at the time repayment began. By avoiding capitalization, Jack saved $745 on the total amount of his repayment.

Case
Total Principal at Repayment
Monthly Payment
Number of Payments
Interest Paid
Total Amount Repaid
Jack
$4,000
$50
107
$1,345
$6,830*
Kate
$5,485
$63
120
$2,090
$7,575
Savings
$745

*Includes original $1,485 paid during school

 

 

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