Do You Have to Pay Loans While in Grad School?

Pursuing a graduate degree often raises questions about student loan obligations. Many wonder if payments on existing student loans are required during this advanced study. The answer is not always straightforward, as it depends on the type of loans held and specific enrollment circumstances. Understanding the various options available is important for managing educational debt effectively during graduate school.

In-School Deferment and Grace Periods

For federal student loans, payments are often paused during graduate studies through in-school deferment. This deferment applies automatically if a student is enrolled at least half-time at an eligible school. Direct Subsidized, Direct Unsubsidized, and Federal Family Education Loan (FFEL) Program loans qualify for this benefit. If deferment does not automatically apply, students can contact their loan servicer or school to ensure correct enrollment status reporting.

Grace periods also pause payments, especially when transitioning between academic programs. Most federal student loan types, such as Direct Subsidized and Unsubsidized Loans, offer a six-month grace period after a student graduates, leaves school, or drops below half-time enrollment. This provides a temporary buffer before repayment begins, allowing time to prepare for financial obligations. Some older Perkins Loans may have a nine-month grace period. Direct PLUS Loans for graduate students do not have a traditional grace period but automatically receive a six-month deferment after ceasing half-time enrollment.

Grace periods and in-school deferments serve distinct purposes. A grace period is a one-time transitional phase, while in-school deferment is tied to ongoing enrollment status. Private student loans operate differently; they may or may not offer in-school deferment or grace periods, and policies vary by lender, requiring direct communication to understand options.

Alternative Payment Pause Options

Beyond in-school deferment, other federal options exist for pausing or reducing student loan payments, especially for those not enrolled half-time or facing financial challenges. Economic hardship deferment is available for borrowers receiving means-tested government benefits, or whose income falls below 150% of the federal poverty guideline. This deferment can be granted for up to three years. Unemployment deferment is another option for individuals actively seeking but unable to find full-time employment, also available for up to three years.

Forbearance offers another temporary payment pause or reduction, though it differs from deferment in how interest accrues. General forbearance is granted at the loan servicer’s discretion for reasons such as financial difficulties or medical expenses, for periods of up to 12 months, with a cumulative limit of three years. Mandatory forbearance is required in specific situations, such as participation in AmeriCorps or certain medical residency programs. Private loan lenders may also offer their own forbearance or deferment programs, which are not standardized and depend on the lender’s terms.

Income-Driven Repayment (IDR) plans provide a different approach to managing federal loan payments, potentially resulting in low or even $0 monthly payments. These plans, which include options like the Saving on a Valuable Education (SAVE) Plan and Income-Based Repayment (IBR) Plan, calculate monthly payments based on a borrower’s income and family size. While payments can be significantly reduced, interest may still accrue on the loan balance, potentially leading to a larger total repayment amount over time.

How Interest Accrues

Understanding how interest accumulates is important for any student loan borrower, especially when payments are paused. Federal student loans are categorized as subsidized or unsubsidized, and interest accrues differently for each. For Direct Subsidized Loans, the government pays the interest that accrues while a borrower is enrolled at least half-time, during the grace period, and during periods of deferment. This means the loan balance does not grow due to interest during these times.

In contrast, interest begins to accrue on Direct Unsubsidized Loans from the moment they are disbursed, regardless of enrollment status or deferment. While payments are not required during deferment or grace periods, the interest continues to accumulate. Similarly, Direct PLUS Loans also accrue interest during all periods, including in-school and deferment. If this accrued interest is not paid, it can be added to the principal balance through a process known as interest capitalization.

Interest capitalization occurs at certain points, such as at the end of a grace period, deferment, or forbearance period. When interest capitalizes, the unpaid accrued interest is added to the original principal balance of the loan. This increased principal amount then becomes the new basis for calculating future interest, meaning interest is charged on a larger sum. This process can significantly increase the total amount repaid over the life of the loan, making the overall cost of borrowing higher than the original amount. Private loans accrue interest during any payment pause, and this interest is capitalized if not paid.

Steps for Loan Management

Proactive management of student loans is important for graduate students to ensure their payment status aligns with their academic plans. Students should regularly confirm their in-school deferment status directly with their loan servicer or by checking the National Student Loan Data System (NSLDS). This step helps verify that the school has correctly reported enrollment information, which is the trigger for automatic deferment. If deferment is not automatically applied despite eligible enrollment, students should contact their school for accurate reporting or submit an in-school deferment request form.

Maintaining open communication with loan servicers is advisable for questions regarding loan status or available options. Servicers can provide guidance on applying for deferment, forbearance, or income-driven repayment plans if automatic processes are not in place or if eligibility for alternative options is being explored. When applying for alternative deferments, forbearance, or IDR plans, borrowers need to complete specific forms and provide required supporting documentation to their servicer. Keeping detailed records of loan information, correspondence with servicers, and submitted documentation can help resolve discrepancies.