Navigating the Six Month “Grace” Period

Michael Lux Best Of, Blog, Money Saving Tips, Student Loans 8 Comments

When you graduate or withdraw from college your six month “grace” period begins.  This is the seemingly magical time in your life where you are done with school but don’t owe any money on your student loans.  The six month “grace” period applies to all Federal loans and most private loans as well.  It is the industry standard.  At first glance, it seems great.  You have finished college, there are no bills for your student loans, and you get a chance to get your finances in order.  Unfortunately, it is not all its cracked up to be.

What is the “Grace” period?

The term Grace Period is horribly misleading.  Grace implies a simple elegance.  When we hear grace we think of a swan and it conjures positive images.  It sounds like a good thing.  Who is the grace period good for?  Your Bank!

Sure it seems like you aren’t paying any money during the grace period, but the reality is that you are.  Each month your interest grows.  It compounds.  It may seem like you don’t have to do anything but, with each month that passes, your mountain of debt grows.

What should I do during the “Grace” period?

Don’t wait for a bill to arrive in your mailbox or your inbox.  It is not your lenders responsibility to track you down.  You have to find them.  The longer you ignore your student loans, the higher the balance becomes.  The banks and lenders know that unlike credit cards, its almost impossible to get out of paying your student loans.  The dirty little secret is that the banks and lenders want you to take longer to pay back your loans and to incur some late fees.  It is just more money in their pocket.

This all means that you need to be proactive when you finish school.  If you have been smart and paid down the interest while you were in school, great.  Keep doing this and pay a little extra if possible.  If you haven’t, you need to start paying whatever you can as soon as possible.

Now is the time to be making a budget and putting together your plan to pay off your debt as soon as possible.

What not to do during the “Grace” Period

I know it is tempting to splurge a little on yourself after graduation.  If you worked hard and had a little bit of luck, you may have a job.  You may be getting the biggest paychecks you have ever gotten in your life.  You may think, “I deserve this.”

Whatever you do, avoid this impulse.  For me this impulse came in the form of a blu-ray player and a big screen tv.  Don’t let it happen to you.  Repeat after me: I will not make any big purchases until I have started repaying my student loans.

If you just finished college, I have a bit of news for you: You have no idea how much money you have.  It may seem like plenty, but once Uncle Sam, Sallie Mae, and your landlord have taken their share, you will find there isn’t much left.  If you are thinking about that graduation gift for yourself, just wait a few months.  Make a few student loan payments and learn how much your current lifestyle costs before you start upgrading it.

Readers: Did you burn yourself with a post grad purchase? 

Notify of
Inline Feedbacks
View all comments

I completely ignored the grace period and kept on trucking. I had started paying day one while in school, so it was just the norm for me to be paying when I graduated.


I thought most grace periods on student loans were not accruing interest. That is sneaky.
One more reason to pay them asap.


The six month grace period made such a difference for me. I was so worried about all the debt I had when I graduated b/c I had to pay half of my tuition and fees. And having that extra time to relocate and find a job first really helped. Every little bit makes a difference.

Digital Personal Finance

That’s a great point about the interest. I paid my grad school loans, or started paying them off I should say, beginning with the 6 month mark. I took advantage of the grace period, but in reality it helped because my job didn’t start until a few months afterward. Nevertheless, it’s a great idea that people know about interest starting right away.