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Student Loan Grace Period: Is It Time to Refinance Now?

Student Loan Grace Period: Is It Time to Refinance Now?
Rebecca Safier
Rebecca SafierUpdated May 25, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Whether you owe federal student loans, private student loans, or a mix of both, you will most likely have a six-month grace period after you graduate. This grace period gives you time to find a job before you have to start paying those student loan bills. But you don’t have to wait until your grace period is over to start dealing with student loans. You can jump into payment immediately.  In fact, you could even choose to refinance student loans during this time in search of a lower interest rate. Be careful not to rush into refinancing, however, since you can’t reverse the process once it’s over. If you refinance your federal loan with a private lender, you forfeit all government forgiveness programs and pauses in payment.So make sure to weigh the pros and cons of refinancing before you apply, especially if your student loans are still in their grace period. 

Student Loan Grace Period Overview 

A student loan grace period is a window of time during which you don’t have to make payments on your student loan debt. Both federal and private student loans typically offer this grace period for new graduates. While you aren’t required to make payments, interest will be accruing on most types of loans, including Direct unsubsidized loans and private student loans. The one exception is Direct subsidized loans, which don’t accrue interest during your grace period or other periods of deferment.Note that parent PLUS loans don’t automatically come with a grace period. If you’re a parent PLUS borrower, you’ll start making payments right after the loan is disbursed unless you specifically request a deferment while your child is in school or for six months after they graduate.

How Long Is a Student Loan Grace Period? 

Most federal student loans, such as Direct subsidized and unsubsidized loans, have a six-month grace period. Perkins loans came with a longer grace period of nine months, though the Department of Education stopped offering these loans in 2017. Some private student loans also come with a six-month grace period, though this will vary by lender. If you owe private loans, it’s worth checking the terms of your loan agreement so you don’t accidentally miss your first bill. 

Can I Refinance My Student Loans During My Grace Period?

Although payments aren’t due during the grace period, that doesn’t mean you have to ignore your student loans completely. You could choose to start paying off student loans early to cut down on interest, or you could even explore your options for refinancing student loans. Some people waive a refinance waiting period.Before you apply, however, it’s important to understand what student loan refinancing is, including both its pros and cons.

Pros of Refinancing Student Loans During Grace Period

There are both pros and cons to consider when it comes to refinancing student loans during the grace period. If you can qualify for a lower interest rate than what you currently have on your student loans, lowering your interest rate could save you hundreds or even thousands of dollars over the life of your loan.However, the rate you get largely depends on your credit and income, as well as on market rates. If lenders are offering low rates, yes, it could make sense to pursue refinancing, even if you’re still in your grace period. If you wait six months for your grace period to be over, those rates might go up, causing you to miss out on potential savings.Refinancing gives you the chance to restructure your debt with new repayment terms. You can often choose a term between 5 and 20 years, depending on your budget and repayment goals. Finally, refinancing multiple loans is a form of debt consolidation that simplifies repayment since you’ll only have to manage a single loan with one monthly bill. 

Cons of Refinancing Student Loans During Grace Period 

Although waiving a refinance grace period can be beneficial, there are also some downsides.The most important factor is that new graduates might have difficulty qualifying for refinancing on their own, since lenders look for strong credit and a steady income. If you don’t meet a lender’s requirements, you might have to apply with a cosigner. Most importantly, refinancing federal loans with a private lender means sacrificing federal protections. You’ll no longer have access to income-driven repayment plans, federal deferment and forbearance options, or federal forgiveness programs. As a new graduate, your career plans are probably still up in the air and may change over the years to come. It might not make sense to sacrifice access to programs like Public Service Loan Forgiveness at such an early point in your career. 

When Should I Refinance My Student Loans?

Since the goal of refinancing is often to get a lower interest rate, you are in the best position to get a good deal when you have a strong credit score. That comes through an established employment history, a record of paying bills on time, and a low debt-to-income ratio. It’s unlikely you will reach that point within six months of graduation.

The Takeaway

Even if it’s possible to refinance student loans during your grace period, that doesn’t necessarily mean you should. As a new graduate, chances are you’ll be a better candidate for student loan refinancing after you’ve spent a few years stabilizing your income and building your credit history. Since you can’t reverse the refinancing process once it’s done, make sure you fully understand the pros and cons so you can decide if it’s worth refinancing your student loans now or waiting until your grace period is over. If you decide the benefits of refinancing outweigh the potential disadvantages, take some time to shop around and compare your options. Lantern by SoFi can help you find and compare student loan refinance options from multiple lenders.

Frequently Asked Questions

Can you refinance student loans while in deferment?
Can I waive the grace period for student loans?
Should I make payments during my grace period?
Photo credit: iStock/Ziga Plahutar

About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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