Taking a Semester Off? Make These Moves with Your Student Loans

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By Brian O'Connell

May 21, 2019

Taking a semester off from college doesn’t have to be a big deal, but it can be if you don’t handle the financial side of the equation correctly.

Consider student loans, which chart a different course when you decide, for whatever reason, to take a semester off from college.

There are ripple effects to those loans when you take an academic sabbatical, and it’s to your benefit to know them to make sure everything will be in order, financial aid-wise, when you return to campus.

Things to Know about Student Loans When Taking Time Off from School

College students preparing to take some time off should prepare a checklist on what to know and what steps to take with their student loans. In particular, special attention should be given to the rules and dates that apply to college financial aid (especially on student loans) in a period of academic inactivity.

Make these checklist items a priority.

Know that the student loan servicers are watching. You may not realize it, but once you register for classes for the coming semester, your student loan servicer knows about it – they’re informed by the college that you’re registered for classes and will be in an in-school deferment.

Additionally, student loan servicers know when a college student doesn’t register for classes, or registers for less than half the classes needed to be classified as a full-time college student.

The clock starts ticking on the grace period when you’re not attending college or when you’re taking less than half the classes needed to be a full-time student. Once the grace period is gone, the loans enter repayment. Public and private lenders do pay attention to your academic activity and inactivity, and students taking time off time need to know that.

Know the student loan grace period. Also know that there are variables between federal student loans and private student loans when you leave school temporarily.

The loan’s grace period is the biggest issue.

With a federal student loan, the grace period for repaying the loan is six months, although Federal Perkins loans have a grace period of nine months. With a semester off, the grace period comes into play if your enrollment status falls below half-time.

Consequently, what you do upon your return to school has a big impact on your student loan.

If, for example, you return to campus on at least a half-time basis within six months of leaving school, a federal student loan simply resets, and loan payments will be required within six months of graduation. In that regard, leaving school temporarily just pushes the loan repayment date back.

Also, interest may accrue on an unsubsidized federal student loan while you’re in the grace period – check with your student loan servicer to see what rules apply.

What happens with a private student loan? If you take time off from college and you’re dealing with a private student loan, the rules shift, and not in the favor of the student loan borrower.

A private student loan borrower who takes a semester off from college may also see the grace period extended, as long as he or she comes back to school within six months on at least a half-time basis.

That’s where the similarity with federal student loans ends. Private student loan lenders can deduct the time spent away from school from the loan payment grace period, and will also keep the clock running on the interest accruing on those loans, which adds to the borrower’s total student loan burden.

It’s always a good idea to talk with a student loan provider when you’re taking time off, but that goes double for private student loan lenders. The rules may well be different, and you’ll want to do everything in your power to re-register as a full-time student before the grace period expires.

If you take longer than a semester off from college. Taking more than six months away from school has even a deeper impact on student loan and depends greatly on what kind of loan you owe.

For instance, if you take a full year off from college, and you have an unsubsidized loan, you may want to look into a student loan deferment or forbearance, which allow you suspend payments by up to three years for federal student loans and up to one year for private student loans.

If you have a subsidized federal student loan, chances are good interest will stop accruing during a deferment period, but you should still check with your loan provider.

If you have unsubsidized federal student loans or have a private student loan, interest will likely continue accruing.

Thus, it’s even more important to stay in regular contact with your private loan provider and keep them apprised of your situation – that’s your best chance of gaining financial relief when you take time off from college.

Know the Rules

No doubt, the decision to take a full semester off from college isn’t an easy decision.

Even so, anyone doing so will need to add the impact of student loans to the experience, and make sure they understand the rules and ramifications of stepping away from academic life for a while.

The penalty for not doing so is likely more severe than you think, and that should reason enough to get on the ball and address your student loans before, and not after, you walk off campus for a semester.



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