When you must start paying back a student loan depends on which type of student loan you have. The federal student loans, such as Federal Perkins Student Loans, Direct Stafford Student Loans and Federal Family Education Student Loans will give you a period of grace and you don’t have to start paying back such student loans until several months after you have left school. With other types of student loans, such as PLUS loans or ordinary bank loans, you or your parents usually have to begin paying back the student loan right after receiving the money. Remember that you or your parents might be eligible for a tax deduction while paying back a student loan. There are tax incentives for certain expenses connected to higher education, and student loan interest is one of these expenses. You are eligible to this benefit if you have used a student loan to pay for postsecondary education costs. In 2005, the maximum deduction was $2,500 a year. If you need more specific information regarding credits and other tax benefits connected to higher education and student loans, contact the IRS at 1-800-829-1040.
If you have a Federal Perkins Student Loan you will receive a 9 month long ‘grace period’ if you have been attending school at least half time. If you are attending less than half time your financial aid administrator will help you calculate your individual grace period. The 9 month grace period means that once you have graduated or left school, you will not have to start repaying you Federal Perkins Student Loan until 9 months later. This way, you will have some time to find a suitable job and get your finances in order before starting to pay back your student loan. If you are on active duty within the military you can be eligible for a longer grace period than 9 months.
If you have a Direct Stafford Student Loan or a Federal Family Education Loan (FFEL) Stafford Loan, the grace period is 6 months. If your student loan is a so called ‘Subsidized student loan’ you will not have to make any payments during the grace period and you will not be charged any interest during this time. If you have an ‘Unsubsidized student loan’ you do not have to make any payments during the grace period, but you will be charged interest. You can choose not to pay the interest during the grace period, and instead have it added to the principal loan balance. Keep in mind that any interest added to your loan will make your lone larger, and you will end up paying interest on the capitalized interest. Just as with the Federal Perkins Student Loan, active duty within the military can make you eligible for a longer grace period.
Parent loans are often Direct PLUS student loans or FFEL PLUS student loans. If it is a Direct PLUS loan, the U.S. Department of Education is the lender of the money. With a FFEL PLUS loans, the parents are lending the money from an independent lender. Both types of PLUS student loans usually require that the parents begin repaying the student loan within 60 days after the money has been paid out, so the parents must begin paying of both principal and interest while the student is still in school. There is no grace period for PLUS student loans and interest will therefore start to accumulate right from the beginning.