Hi Diann,
If she can return it to you in its original condition, and you can resell it, then you should refund her minus the original shipping price. Then you can cancel the transaction entirely (or not depending on whether you want her review or not).
I think it's one thing to come up with policies as a seller, but it's important to think about it from the perspective of a buyer. When I buy from local big box stores, some of them allow me up to 2 or 3 months to return the item in its original packaging/condition. Other smaller stores allow at least 7 - 14 days. I don't think it's reasonable to expect people to start the process of returns any sooner than a week - it'd be nice if it happened, but I wouldn't count on it. There are so many things that happen in our daily lives, that a single product return is not usually at the top of our lists.
Good luck!