Before the payments begin, most student loan borrowers are given a 6-month grace period.
Getting a lower interest rate through refinancing on your student loan can help you save money.
If you (or your co-signer) have good to excellent credit, you might anticipate the lowest rates.
In this article, we’ll investigate whether or not you can refinance your student loans during your grace period.
- What Is The Grace Period?
- Is Interest Accumulating During The Grace Period?
- Why Should You Refinance During the Grace Period?
- Thinking of Refinancing During Your Grace Period? Here’s the Best Option
- 3 Things To Consider Before Refinancing During The Grace Period
- How Much Could You Save by Refinancing Student Loans During the Grace Period
- Frequently Asked Questions
What Is The Grace Period?
The grace period is a period when you are not yet required to make student loan payments.
The term varies according to the lender, but it generally covers the first 6 months after graduation.
The grace period allows you to find work and balance your finances before you have to start repaying your loan.
This time frame is unique for public versus private student loans.
Most federal loans do not provide it, but many private ones do.
Before you assume you don’t have to make payments yet, be sure to get confirmation from your lender.
Is Interest Accumulating During The Grace Period?
During your grace period, interest will continue to accumulate on most student loans (except for federal loans), even those that you refinanced.
The sum will continue to rise since no payments have been made towards the principal or interest that has accrued.
The U.S. Department of Education covers the interest on subsidized federal loans, such as Direct Subsidized Loans, while you’re in school and for the first 6 months after you graduate.
Why Should You Refinance During the Grace Period?
Refinancing is the process of paying off your student debt at a lower rate than you were previously.
Instead of having to make numerous payments to various lenders throughout the month, you’ll have one bill at the end.
Even if you haven’t made payments yet, you may begin saving right now.
This is where refinancing can assist you.
When you’re in the grace period, ignoring your student loans may result in a huge financial loss.
When the grace period expires, any interest earned during that time will be added to your existing principal amount.
If you have a lot of high-interest loans, this could end up being a significant financial burden.
If you wait 6 months for your grace period to expire before refinancing, you risk losing a better rate.
You might lock in a lower fixed rate now and avoid increasing rates in the meantime.
Does it make sense to refinance during the grace period for you? Begin by gathering data such as your balances, interest rates, due dates, and monthly payments to gain some clarity.
The most crucial thing to consider is how much interest you’re paying on all of your debts.
However, if you have a steady income coming in and want to save money, refinancing during the grace period is one way to accomplish it.
Thinking of Refinancing During Your Grace Period? Here’s the Best Option
CommonBond is the only firm to offer a 24-month grace period on your student loan, so you can refinance them at any time without penalty during that time and still not have to pay until it runs out.
Use our student loan refinancing calculator to estimate how much you could save and get quotes from multiple lenders.
3 Things To Consider Before Refinancing During The Grace Period
1. You’ll Have no Waiting Period
Eligibility for a student loans offer for refinancing depends on the lender.
However, it is uncommon for borrowers to be required to make a specific number of payments against their existing debts.
You may refinance private loans as soon as you can satisfy the lender’s requirements.
That might be more difficult for recent graduates, but it’s not due to a lack of payment history.
They may be new borrowers from a credit standpoint, or they might not have all of their bases covered when it comes to income and salary.
To refinance your debts, you’ll generally need a credit score of at least 670, a monthly debt-to-income ratio of less than 50%, and a consistent income.
After you’ve completed your degree, the economic consequences of a pandemic might appear unattainable.
With an acceptable co-signer, you may be able to qualify even if you can’t fulfill the conditions.
Co-signers are equally responsible for a loan; you’re probably already on one of your existing private student loans.
If they can co-sign for you again, their obligation to pay the debt will not alter.
However, a less expensive payment could help you avoid unforeseen difficulties.
You may also like: How To Go Back To School With Defaulted Student Loans
2. You Will Does Not Lose any Federal Student Loan Benefits
You may refinance your student loans if their terms are more favorable than the existing ones.
If you refinance a federal loan, it switches to being a private loan.
Keep in mind: Don’t rush to refinance your federal loans right away. There will be no interest rate on payments through May 1, 2022.
Whether you need or want them, federal loan perks can help you pay off your debt.
Because they don’t qualify for federal loans, you won’t lose any of those benefits if you refinance private loans.
3. You Could Receive a Lower Payment
If you’re having trouble making your private loan payments, refinancing at a lower rate might help you pay off your debt faster.
The interest rate market is fantastic (These are) some of the lowest interest rates we’ve seen.
When you refinance your student loans, you switch loan servicer providers, so for example, say you owed $50,000 in private loans with a 10% interest rate.
6% refinancing would cut your monthly payments by $85 and save you $12,678 overall, assuming you needed to refinance after 10 years.
Your monthly expenses will be lower if you extend your repayment term to 15 years, you’d lose some money overall, but you’d still end up ahead.
If you paid less on your private loans by using other alternatives, this is not necessarily the case.
For instance, most lenders will allow you to postpone payments with forbearance.
While continuing to pay nothing may seem appealing, interest accrues throughout these periods, in the end, you must pay this accrued interest.
If you haven’t yet worked or just got a job, these alternatives may make sense. However, if you’ve been working for months and can start paying down your debt, now is the time to explore refinancing so you know what your choices are.
You may also like: How To Transfer Student Loans To Another Lender
How Much Could You Save by Refinancing Student Loans During the Grace Period
The phrase “thousands” is commonly used to describe the amount of money you might save on a student loan refinance. It isn’t necessarily a false promise.
The rate you pay on your loan will be determined by comparing the average amount of interest a selection of their clients would pay with and without refinancing.
Assume you have $100,000 in student loans with an interest rate of 8%.
On a 10-year payback schedule, you will pay almost $46,000 in interest throughout the life of the loan.
If you get a 5% interest rate after refinancing and keep a 10-year loan term, they will save roughly $18,000 by lowering their total interest payments to about $27,000.
Depending on your credit score, income, and financial health, you might owe much less or much more.
Frequently Asked Questions
Marie got her journalism degree from the University of California and is an award-winning financial journalist, who’s responsible for collecting and analyzing information concerning students and young adults within the world of finance.
Marie has spent her career with more than 5 years writing for unique media outlets like Yahoo finance, GoBankingRates, and CNBC. She also teaches them how to plan strategically to get out of loan debts easily.
Her goal is to educate students about the different stages in life that involve finances so they can get their money’s worth.