Although football players had been enrolling early at Bowl Championship Series (BCS) programs for several years, Grady was the first University of Michigan football player to do so. In subsequent years several other players followed his lead, including Justin Boren and Carlos Brown the following year. By graduating high school early, he was able to attend the 2005 Rose Bowl and participate in 2005 Spring football practice.

As a freshman in 2005, Grady rushed 121 times for 483 yards and five touchdowns as a backup and injury replacement for starter Mike Hart, who only played in eight games due to injuries. Grady also caught 14 passes for 113 yards receiving. One of his touchdowns gave Michigan an 18–12 lead in the third quarter of the Ohio State game. In the end Grady made two starts at tailback, and was one of only six freshman to have played for the 2005 Michigan Wolverines football team.

Based on his performance during 2006 spring practice, Grady received the John F. Maulbetsch Award. In 2006, he entered the season as Hart’s primary backup, ahead of senior Jerome Jackson, freshmen Brandon Minor, and Carlos Brown on the depth chart. On opening day, Grady’s five carries were second on the team, but some questioned why his total was so low. As the season progressed, he remained second on the depth chart, seeing limited playing time due to injuries as well as starter Mike Hart being healthy and starting all thirteen games. Grady rushed for 187 yards and three touchdowns on 55 carries and added one reception for eight yards. His net rushing yards from scrimmage ranked fourth on the 2006 Michigan Wolverines football team.

Prior to spring football practice in 2007, Grady switched his jersey number from 3 to 24, his high school number and the day on which he was born. Later that year he was converted to fullback. During a scrimmage in early April, Grady tore his anterior cruciate ligament. On April 16, 2007, he had surgery. He would miss the entire 2007 season recovering from his injuries; by making use of a redshirt year, however, he was able to not use up a year of eligibility.

In 2008, Rich Rodriguez replaced Lloyd Carr as head coach. During spring football, Grady was still recovering from injuries.

In July 2008, Grady was pulled over while driving in Wyoming, Michigan with a blood alcohol content of .281, more than three times the state’s legal limit. He originally pleaded not guilty. Grady began the 2008 season on suspension from the 2008 Wolverines, while Brown, Minor and freshmen Michael Shaw and Sam McGuffie fought for time. During the season, Grady pleaded guilty to misdemeanor drunken driving.

In the spring of 2009, Grady was accused by court officials of not adhering to his probation reporting requirements and not meeting the 24 hours of community service requirement of his probation, among other violations. As a result, he was jailed for seven days in May 2009.

Kevin’s brother, Kelvin Grady, was a point guard on the Michigan Wolverines men’s basketball team before transferring to the Michigan football team after the 2008–09 season. On October 17, 2009, the two became the first pair of brothers to score a touchdown in the same game for Michigan as far as could be told by the school’s record books. Over the course of the season, Kevin started three games at fullback for the 2009 Wolverines. He compiled 80 yards rushing on 10 carries bringing his career total to 783 yards on 200 carries and 10 touchdowns. He also made 5 receptions bringing his career total to 20 for 150 yards.

Grady was not selected in the 2010 NFL Draft and was not an immediate undrafted free agent.

On November 26, 2010, Grady was arrested and charged again for driving under the influence after recording a .3 blood-alcohol level on a breathalyzer test. He is required to attend Alcoholics Anonymous meetings three times a week. On December 31, 2010, the Indoor Football League announced that the Chicago Slaughter had signed Grady. On May 11, 2011, four days after scoring six touchdowns for the Slaughter, Grady was sentenced to twenty days in jail for his November drunk driving offense. The sentence included two years of probation, 80 hours of community service, random drug tests, confinement to the state of Michigan until given leave by the judge, and 180 days of car immobilization. In addition, the sentence resulted in him being dropped from the Slaughter.