Post-college life

Should I Refinance My Student Loans During the "Grace Period?"

Right now, new graduates are finding themselves in the middle of a huge period of transition. College is behind them, which means it's time to focus their next step—and come face to face with their student loans. One major bright spot: most borrowers have a brief repayment cushion called a grace period, which gives them time to get their financial ducks in a row before chipping away at their balances.

This time is usually interpreted as an opportunity to put off your payments just a little bit longer, but it's also an excellent time to refinance your loans so that once you start repaying them, your monthly payment is even lower.

You don't have to wait for your grace period to expire to take control of the situation and start saving money right away.

What is the Grace Period?

The grace period is exactly what the name implies—a window of time where you aren't yet responsible for making student loan payments. The length varies from lender to lender, but generally covers the first six months after graduation. The biggest public loan exceptions are Perkins loans, which tout a nine-month grace period, and PLUS loans, which don't have a grace period at all.

The grace period essentially buys you some time to find employment and stabilize your income before you have to begin making good on repaying your loan. This period shakes out a little differently for public versus private student loans. Most federal loans offer it, but not all private ones do. Be sure to get clarification from your lender before assuming you don't have to make payments yet.

Why Refinance During the Grace Period?

Refinancing means paying off your student debt with a new private loan that has a lower interest rate than what you were paying previously. So instead of eventually having to make multiple payments to different lenders throughout the month, you'll have just one bill.

Even if you're in the middle of your grace period and aren't making payments yet, you can still start saving today. This is where refinancing comes in. CommonBond is unique in that we'll honor your grace period — in other words, you can refinance your loans during this time and still not have to make a payment until that time period expires.

Ignoring your student loans while in the grace period often translates to a huge missed financial opportunity. This is because, more often than not, interest continues to accrue. Once the grace period comes to a close, that accrued interest will then be tacked onto your current principal balance. If you're saddled with high interest rates across multiple loans, this could work out to a sizeable financial hit.

Another major thing to keep in mind is that interest rates are on an upswing, and insiders predict that they're only going to get higher over the next year or so. Waiting six months for your grace period to run out before refinancing could mean you potentially lose out on a lower rate. Locking in a lower fixed rate now lets you sidestep rising rates in the interim.

So does refinancing during the grace period make sense for you? To gain some clarity, begin by gathering up all your relevant student loan information. This includes your balances, interest rates, due dates, and monthly payments. Are you comfortable with your minimum payments and repayment terms? The biggest thing to consider is how much you're paying in interest across all your loans. You can crunch the numbers headache-free with this student loan refinancing calculator.

Let's pretend you have four student loan balances totaling $35,000 with an average interest rate of 7 percent and a repayment timeline of 10 years. At this rate, you'll shell out over $13,700 in interest over the life of the loan. If you refinanced and locked in a 5-percent rate, you'd save more than $4,000.

That's certainly reason enough to consider refinancing, but every circumstance is different. One of the biggest things to consider is whether or not refinancing will terminate your grace period altogether. (This all depends on the lender.) Also, rolling a public loan into a new private one means losing some important protections such as the ability to opt into income-based repayments, deferment, and certain loan forgiveness programs (check with any potential lender to see exactly what protections you can retain). If your career path is uncertain, giving these up may not be wise.

That said, if you've got steady money coming in and are interested in keeping more cash in your pocket, refinancing during the grace period is one way to get the job done.

How to Refinance During the Grace Period

Begin by gathering up all that information we mentioned above regarding your debts. You should be able to find this on your loan servicer website after logging into your account. Just keep in mind that to get approved for refinancing, you'll need to have good credit, a steady job, and the ability to prove your income. From there, you'll be on the path to steep savings, thanks to a lower interest rate.

Ready to move forward? Begin here to get the ball rolling.

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