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The Life of a Student Loan

What to anticipate when borrowing money for college, from researching to repaying.
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From the time you take out a student loan until you start paying it back, you’ll become a different person. Do future you a favor, financial experts say, and start thinking about the entire life cycle of your loan even before you sign on the dotted line and accept its terms.

There’s often a tendency to “hide from it a little bit – either in the preparation or repayment process,” says Angela Colatriano, Chief Marketing Officer of College Ave Student Loans. “It’s scary to think about sometimes, but it’s important to push through and make sure you're using all the tools and information available to you to make good choices up front.”

Having a sense of what a loan covers, what it will cost and when you have to start paying it back will set you up for success. Here, experts explain what undergraduates can expect from a private loan – including how to research, apply for and use it, and ultimately, the steps involved with repaying it. Bonus: Some special tips for graduate students and parents.

Researching

Explore and exhaust all non-loan aid options. The first step when you’re thinking about how to pay for college is to start with money you don’t have to pay back, such as scholarships and grants. For example, College Ave Student Loans has a $1,000 scholarship monthly sweepstakes that could help offset some expenses. From there, “the next place people usually go is savings, or what they can pay out of pocket,” Colatriano says. Once you’ve exhausted those two options, most families turn to borrowing.

Understand your loan options. There are two types of student loans: federal and private. “No time is too soon” to start figuring out how each will factor into your college financial plan, Colatriano says – and she recommends having a plan in place even before applying to colleges, or at least 90 days before school starts.

Federal student loans are the first place most people look when borrowing. Students can access them on their own; unlike with a private loan, there’s no need for a co-signer. These loans have a fixed interest rate, plus protections such as loan forgiveness programs, Nerdwallet reports. “We encourage people to go maximize that federal loan money first – it really is the best place to start,” Colatriano says.

However, federal loans typically won’t cover the full cost of attendance. The next stop: private loans. These are offered by institutions such as banks, credit unions and online lenders like College Ave Student Loans. Unlike federal loans, private loans are based on credit and income requirements.

Tip for parents: Open communication is crucial. Sometimes parents assume that things are the same as when they went to college, and they’re not: Prices are higher; processes have changed. That can lead to “a moment of shock,” Colatriano says, which can be alleviated by talking regularly and frankly.

Weigh the best private loan options. At least 60 days before school starts, begin shopping around for the best loan. It’s a good idea to get quotes, rates and terms from several lenders, and to also confirm who your co-signer will be. Benefits vary from plan to plan. Here are some features to consider:

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‍See if you prequalify. Many lenders, including College Ave Student Loans, offer a tool that tells students whether they prequalify and what interest rate they can expect. This does not impact credit score. It’s a great way to get an accurate estimate of what your rate will be before you actually apply, Colatriano says.

And, speaking of your credit: 30 days before you plan to apply, check your credit report for errors. “Errors on your credit report can affect your credit score, which can affect your eligibility for the loan and the interest rates you’re going to pay,” says Mark Kantrowitz, financial aid expert and author of “Filing the FAFSA” and “How to Appeal for More College Financial Aid.” “If there are any errors, get them fixed.”

Tip for parents: Consider whether a parent loan might make sense. The main difference between student loans and parent loans “is who’s on the hook legally to repay that debt,” Colatriano says. With College Ave Student Loans, up to $2,500 of parent loans are delivered directly to mom or dad, who can then control the spending.

Tip for graduate students: Loans for graduate and undergraduate students aren’t identical. For example, grad students can typically borrow more in federal loans than undergrads, but they’ll have higher interest rates, according to Student Loan Hero.

‍Colatriano notes that there might be more differences among lenders than there are for undergrad loans. Graduate students “may need to spend a little bit of extra time doing their homework," she says, especially depending on what they plan to study. For example, MBA student loans might be different from medical school loans or law school loans.

Applying

Submit an application online. At least 30 days before school starts, it’s time to apply for your student loan. Most applications can be completed quickly online; Colatriano estimates that College Ave Student Loans’ process takes less than three minutes.

Kantrowitz recommends applying for several, since a lender’s lowest advertised interest rate isn’t necessarily the rate you’ll get, and you want the best deal.

Plan to supply this information: personal details like date of birth, social security number and household income; the school you’re attending; expected graduation date; and cost of attendance.

You’ll also indicate your requested loan amount. At College Ave Student Loans, undergraduates can borrow up to 100% of the cost of attendance per year, with a minimum loan amount of $1,000. Other lenders have higher minimum rates: $5,000 at SoFi, for example, and $15,000 at Prodigy Finance, according to NerdWallet.

Get approved, and then accept and sign. Sometimes, this process takes a few days; College Ave Student Loans provides an instant decision for all of its loans.

Lenders typically evaluate your credit history, among other criteria, to determine if you’re approved, denied or eligible with a co-signer (Having a co-signer means you’re not approved to take out a loan by yourself, but you can do so with a co-signer – like a parent – who has a good credit history and income. This is very common for private student loans).

Once you’ve decided which loan is best for you, accept and sign.

Await school certification. Your lender will connect with your school to confirm factors like enrollment status, anticipated graduation date and requested loan amount. This typically takes seven to 10 days, and ensures that your requested funds won’t exceed the maximum cost of attendance.

Using

Understand how funds are disbursed. College Ave Student Loans allows students to fund a semester, quarter or full academic year at a time, but not more than that.

There’s no right or wrong amount of time to borrow for, but Colatriano notes there’s a common misconception that you should only borrow for one semester at a time, so that you don’t have to start paying interest on the next semester right away. There’s no need to worry about that. “You’re really only being charged interest on the portion of the loan that you're using,” she says. Borrowing for an entire academic year at a time is usually the most convenient option, she adds.

Private loans are sent directly to the school, not to the students receiving them. Your school will set the date for that to happen; it’s usually at the start of the semester. If there’s extra money after tuition and room and board have been covered, the school will usually issue a refund that can help cover the remaining expenses, such as books and supplies.

Keep in mind its intended use. Loans are meant to cover your cost of attendance, such as tuition, room and board, textbooks and supplies like laptops, as well as transportation if you’re commuting to school. They can also be used on utilities (like your internet bill) and groceries. “It shouldn’t be used for spring break, or a clothing run, or those types of things,” Colatriano says. “It’s important to be thoughtful about using the money responsibly, because you are going to have to pay it back.”

Repaying

Decide whether you’ll start paying the loan back during school. Doing so can lower the cost – and reduce the amount of debt you’ll have once you’re required to start making payments. “Even if you just pay $25 a month while you’re in school, which is doable for a lot of people, that can save you money,” Colatriano says. Take the time to understand what your options are – and their implications – so you can be confident that you’re making the decisions that will serve you best over the long run.

After graduation, figure out exactly how much you owe. It can be confusing to keep track of the full picture of what you owe, since you probably financed your education through a mixture of federal and private loans, as well as scholarships, savings and other sources, such as work-study programs. Getting a copy of your credit report can be a helpful way to ensure you’re not overlooking anything, Colatriano says. Then, take your debt “head on,” she advises. “No matter where you are in the process, make sure you fully understand what your responsibilities are and that you’re making good choices for yourself.”

Brush up on the terms. You’ll need to start repaying the vast majority of federal and private loans six months after you graduate or if you drop below half-time enrollment. Repayment options on private loans are typically more limited than they are on federal loans: Private lenders typically don’t offer income-based repayment plans or loan forgiveness, which are possibilities if you have a federal loan.

Keep an eye out for your monthly statement. Put a reminder in your phone, and if you haven’t received the statement about two weeks before payment is due, contact your lender, Kantrowitz says. “Keep in mind that you're probably going to move after you graduate, and it's your responsibility to let the lender know about your new contact information,” he adds. Another option: Sign up for auto-pay to ensure payments are always on time.

If you can’t make your monthly payment, contact your lender promptly. In some situations – like if you have a medical crisis or lose your job – your lender will offer forbearance, which gives you extra time to get your finances together. “Be proactive and contact the lender,” Kantrowitz says. “Explain your situation and ask what your options are. Ignoring the problem makes it worse – it doesn’t make it go away.”

Tip for graduate students: If you’re enrolled full-time in grad school, you can usually defer payments on your undergraduate federal and private student loans, according to Student Loan Hero. Note, however, that interest will continue to accrue during this period, so you might want to keep paying it off.

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