Grace
A grace period is a time in which payments are not required. Interest continues to accrue on unsubsidized loans; however, the government pays the interest on subsidized loans.
A 6-month grace period is applied automatically to federal Direct Subsidized and Unsubsidized Loans at graduation or when a borrower is no longer enrolled at least half-time. Direct PLUS Loans (for graduate/professional students) do not have a grace period, but they do have a post-enrollment deferment period, which mimics a grace period, and allows postponement of payment for 6 months.
Some other loan types may offer a grace period; however, the length of the grace period can vary depending on the loan type. The borrower should check their promissory note or contact the lender or servicer of the loan to find out if a grace period is associated with the loan.
Only one grace period is provided for each loan. For example, if a medical student borrowed loans as an undergraduate student, then took a gap year before starting medical school, the undergraduate loans for that borrower will not have another grace period after graduating from medical school. If the borrower wants to postpone payment on the undergraduate loans after medical school, they will need to contact their loan servicer to verify if other postponement options are available. Once the student is no longer enrolled at least half-time, payment will be due immediately on the undergraduate loans since their initial grace period was used during the gap year. This borrower’s medical school loans will still have a 6-month grace period.
Deferment
Deferment is another option for a temporary suspension of loan payments. During a deferment, interest does not accrue on subsidized loans because the federal government pays the interest. However, interest continues to accrue on unsubsidized loans (like Direct Unsubsidized and Direct PLUS Loans), and the borrower is responsible for the accumulated interest.
If a medical student borrows loans as an undergraduate student, their undergraduate loans are placed in an in-school deferment status while they are enrolled at least half-time as a medical student. There are various types of deferments, which include: in-school, graduate fellowship, military, economic hardship, cancer treatment, and post-enrollment deferments (for Direct PLUS Loans for graduate/professional students). Direct PLUS Loan borrowers should note that although their loans qualify for the post-enrollment deferment upon graduation, interest will continue to accrue, and will capitalize after the grace period expires. More information about deferments can be found on the Federal Student Aid website.
Deferments are usually granted in 12-month increments and generally have maximum time limits. Although monthly payments are not required during a deferment, it is permissible to make voluntary payments, and doing so will not jeopardize the borrower’s deferment status. To obtain a deferment, a borrower must apply through their loan servicer and meet eligibility requirements. If a borrower is not eligible for a deferment, they may qualify for a forbearance.
Forbearance
Another way to postpone payments is through a forbearance. During this time, no monthly payments are required (or sometimes borrowers will choose to make smaller payments); however, both subsidized and unsubsidized loans accrue interest, and the borrower is responsible for the accrued interest. The interest that accrues during a forbearance will not capitalize. Forbearances are usually granted in yearly increments.
If a medical resident does not want to make payments during residency, they are entitled to a mandatory residency forbearance. This type of forbearance is given in annual increments and can be used to postpone payments yearly or throughout residency. Borrowers must let their servicer know that they are a medical resident to be approved for this forbearance. It is equally important to complete the mandatory medical residency forbearance paperwork annually and on time if you want the forbearance to continue throughout residency.
Some borrowers will have loans with different repayment start dates. For example, a borrower could have undergraduate loans that no longer have a grace period and medical school loans that do have a grace period. In this example, the payment due date for the loans would be different. If the borrower wants the same due date for all loans, they could contact their servicer and request a forbearance alignment. The servicer would then put the undergraduate loans into forbearance so that the payment due date would match the repayment due date of the medical school loans. Some borrowers prefer to do this so that they don’t have multiple repayment dates. Forbearance provisions may vary from loan to loan, so be sure to check the promissory note, contact the loan servicer(s), and/or the financial aid office for more detailed information.
The alternative to postponing payments during residency is to make payments. Required monthly payments can range from zero per month to a full monthly payment amount. The payment amount depends on the repayment plan chosen. Review Repayment Plans for Federal Student Loans to learn more about repayment plan options.
Contact Your Loan Servicer
To apply for a deferment or forbearance, or to ask specific questions about grace periods, deferments or forbearances, borrowers should contact their loan servicer.
- Federal loans – Servicer contact information can be found through the borrower’s Federal Student Aid (FSA) account. A list of federal loan servicers is also available on the FSA website.
- Institutional loans – Servicer information can be found by contacting the financial aid office staff or reviewing the promissory note associated with the loan.
- Private loans – Servicer contact information can be found by contacting the lender or reviewing the paperwork provided when signing for the loan.