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Student Loan Grace Periods:
What You Need to Know

As you prepare to begin residency, you’re probably focused on building relationships and developing new skills. This could also be a time when your student loans are looming large in your mind.

Are you wondering whether it’s best to start repaying student loans right away, or take advantage of deferment and grace periods? No matter what you decide, it’s important to formulate your student loan repayment strategy sooner rather than later.

Which loans offer a grace period?

Two types of federal loans offer grace periods after graduation: Direct Subsidized and Unsubsidized Loans (six-month grace period) and Perkins Loans (nine-month grace period). Note: direct subsidized loans do not accrue interest while you’re in school, or in a deferment period. Direct unsubsidized loans accrue interest during both time periods. Visit the National Student Loan Data System (NSLDS) to verify which types of loans you have. You can also check out the Association of America Medical Colleges’ (AAMC) loan repayment timeline for more details.

Chances are, you have a mix of private and federal student loans. Most private lenders offer a six-month grace period after graduation. This time presents a great opportunity for you to save and prepare for the time when you will be making student loan payments. You might also consider paying down credit card debt during this time – by doing so, you’d have a lower debt-to-income ratio. Many lenders consider your debt-to-income (DTI) when determining your interest rate for a mortgage, car loan or student loan refinancing.


What’s the difference between a deferment period and a grace period?

According to AAMC, deferment is a temporary suspension of loan payments, during which time interest does not accrue on subsidized loans. Grace periods begin automatically; to receive a deferment, you may have to communicate your specific circumstances to your lender.

Many residents will not qualify for deferment on their federal loans, at least during the standard residency timeframe. But they will automatically qualify for student loan forbearance. With this option, you could defer your federal loans during residency; however, your loans would continue to accrue interest during this timeframe. Mandatory forbearance applies to individuals in a medical internship or residency program; your federal loan provider must approve your request if you apply for this. Keep in mind: if you choose this option, you’ll pay more interest in the long run.

You may qualify for a deferment on your private loans. Set up a consultation with Commerce to learn more about the interest savings you could receive.


Should I start paying back my loans right away?

This answer will be different for each individual. However, if you believe you will be eligible for Public Service Loan Forgiveness (PSLF), you might want to start making payments on your qualifying loans right away. The sooner you make your 120 qualifying payments, the sooner your remaining balance could be forgiven.

If you’re concerned about your payment amount, you may consider income-driven repayment plans. To learn more about repayment plans, review the Repayment Plans Compared chart and the Federal Student Aid website.


Closing Thoughts

You may be tempted to pursue student loan forbearance while in residency. While this option can alleviate present financial stress, it may have an impact on your other long-term goals. Think carefully about your circumstances – for example, are you working toward public service loan forgiveness? Or, do you simply want to attack your debt and lower the total interest you’ll pay?

No matter what options you’re considering, we’re here to help. Interested in student loan refinancing? Find your interest rate with The Commerce Bank Medical Refinance Loan. You can also set up a consultation with our Student Lending Specialist to learn more about your repayment options.

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