When Does Repayment Begin on a Subsidized Loan?

Mark Kantrowitz

August 15, 2011

When does a student have to start paying back a subsidized loan? — A.A.

If the loan is a subsidized Stafford loan, repayment begins 6 months after graduating from college or dropping below half-time enrollment status.

If the loan is a Perkins loan, repayment begins 9 months after graduating from college or dropping below half-time enrollment status.

The 6 or 9 month delay before repayment begins is called the grace period. The government continues to pay interest on a subsidized loan during the grace period. Interest begins accruing on a subsidized loan the day after the end of the grace period. The first payment will be due no later than 60 days after the end of the grace period.

Unsubsidized Stafford loans also have a 6-month grace period before repayment begins, but interest accrues during the grace period just as it does during the in-school deferment.

If the borrower does not pay the interest as it accrues, the interest is capitalized (added to the loan balance). This leads to paying interest on interest. Capitalization typically occurs upon status changes in a loan, such as the end of the grace period, the end of a deferment or forbearance and upon default. Capitalization can occur more frequently on certain types of loans.

If a borrower consolidates a student loan during the grace period, the borrower will lose the remainder of the grace period. Repayment on a consolidation loan begins upon disbursement, with a first payment due no later than 60 days after disbursement.

A leave of absence counts against the grace period. Summer breaks between the spring and fall semesters do not count against the grace period, provided that the borrower is enrolled at least half-time during both periods of enrollment.

There are special rules for members of the military who are called to active during for a period of more than 30 days during the grace period. These borrowers are eligible for a military deferment of up to 3 years during their service and are entitled to a full 6-month grace period after completion of the deferment.

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