How will dropping to half-time status affect my student loan grace period?

Question:

I am enrolled as a full-time student this semester. I borrowed a Direct Unsubsidized Loan to help ease the cost of this term’s expenses. I am struggling with several of my classes and my academic advisor thinks that I should drop these courses but it will leave me enrolled as a less than half-time student. If I return to full time enrollment status next semester, how will this impact my loan grace period?

Answer:

The grace period can be thought of as a “waiting period” which affords a student loan borrower time before he or she has to start repaying his or her federal student loans. Grace period begins when a student loan borrower graduates or drops below half-time enrollment. Typically, a grace period attaches to each Direct Unsubsidized Loan. When you drop below half-time enrollment, the waiting period on your loans starts to run and as a consequence, you start using up your grace period. When you return to half-time or greater enrollment, your loans return to an in-school deferment. But, as long as you do not use up all of your grace period, before you return to school, then, when you graduate, the grace period clock resets and your full six-month grace period begins again.

For example, you drop below half-time enrollment in the fall. Fall is 4 months long. This uses up 4 months of the 6-month grace period, so you have 2 months left. If you return to half-time enrollment in the spring and then graduate, your loans will get the 6-month “waiting period” and you will not have to begin repaying your loans until a full six months after graduation.

Now, if you drop below half-time enrollment in both fall and spring, you will use up your entire grace period. The grace period on each loan is over and you must begin repayment of the loans.  If the next fall, you resume half-time enrollment, the loans will be placed in an in-school deferment but when you graduate, they will return to a repayment period status immediately, with no grace period, which results in you having to make immediate loan payments.