6 Stages of a Student Borrower’s Life — and How to Master Them

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It’s not unusual for student loans to cause regrets down the road. Many student borrowers wish they could go back in time, retrace their steps and redo their decisions about how (and how much) they borrowed for their college education.

In some cases, students might have taken out federal and private loans too quickly, signing a college acceptance letter without a second thought. Or they might have known what they were getting into, only to hit roadblocks in repayment well after graduation.

To avoid such a fate — and the mental anguish that can come with it — you’d be wise to master each of the six stages of borrowing. They’ll ensure that, at very least, you start this financial journey with your eyes open:

1. Shopping around
2. Receiving the loan
3. Deferring repayment
4. Entering repayment
5. Optimizing repayment
6. Zeroing the balance

1. Shopping around

At this point, you’ve already spoken with your folks about their college savings, applied for scholarships and state-issued grants and completed the Free Application for Federal Student Aid (FAFSA). You might have even found a part-time job to fund your out-of-pocket contribution.

Once you’ve decided that debt is necessary to bridge the remaining gap toward your school’s cost of attendance, you’ll have your choice of federal student loans borrowed from the education department and private student loans borrowed from banks, credit unions, state agencies and online lenders.

Federal loans could be included in your school’s financial aid award letter, but for private loans, you’ll have to handle the legwork of vetting lenders and their products. Thankfully, most banks feature intuitive online applications that offer prequalification within minutes.

Master the stage: With a creditworthy cosigner, you might be able to score a lower interest rate from a private lender, but don’t overlook federal-loan-only perks like mandatory forbearance.

2. Receiving the loan

Although some private lenders offer multiyear approval, each student loan you borrow covers just a single year of your education. If you acquire one loan per year, for example, you could leave school with four separate loans, perhaps sourced from four different lenders.

If you accept a federal student loan prescribed by your school, the funds will be disbursed — or applied — directly toward your tuition and other costs. You have 120 days after receiving the loan to cancel it, free of charge.

Private student loans, on the other hand, are borrowed and received on your own timeline. After signing your loan agreement — also known as the promissory note — your lender must certify the borrowed amount with your school. Private lender College Ave Student Loans cautions on its website that your school should be scheduled to receive the funds at least 10 days before the start of the term.

Master the stage: Aside from ensuring the loan arrives before your tuition bill comes due, don’t misuse leftover loan money. If you receive a tuition refund check from your school, for example, sending it to your lender as a lump-sum, in-school payment will stop additional interest from accruing on your debt.

3. Deferring repayment

The education department and the majority of private lenders allow you to defer, or postpone, repaying your loan while you’re in school and for the first six months after graduating. Submitting in-school payments or making the most of your grace period, however, could yield big benefits.

That’s because interest starts accruing on most federal and private student loans immediately, with direct subsidized loans as the exception to the rule. If you borrowed $10,000 at 6.00% interest as a freshman, for example, and didn’t begin repayment until after your grace period, you’d enter repayment $12,700 in the hole, according to our loan deferment calculator.

Still, you might decide to take advantage of your lender’s willingness to delay repayment if it helps you focus on your studies or other financial goals.

Master the stage: Sending as little as $25 a month for in-school or grace-period payments to your lender can stop interest from accruing on your balance. Even if you choose to defer repayment, pay attention to federal loan counseling (or start talking to your private lender) so that you can hit the ground running when repayment does officially begin.

4. Entering repayment

Once you’ve stepped off campus — ideally, with a diploma in hand — and have exhausted your grace period, receiving your first student loan bill shouldn’t come as a shock. Yes, you might be overwhelmed by leaving the college bubble behind and entering the real world, but you’ve likely been bracing for repayment for years.

With or without a full-time job nailed down, documenting your cash flow could help you start repayment on the right foot. If you struggle to meet your minimum monthly payment, you might enroll in income-driven repayment (for federal loans) or ask your private lender about your options. The time is also right to determine whether you could start working toward qualifying for loan forgiveness programs.

Also, instead of viewing your education debt as a drag, consider it an opportunity to build your credit. With each prompt monthly payment, you show your lender (and other creditors) that you’re a responsible consumer. Keep in mind that an excellent credit score will help you accomplish other financial goals in the future, so tracking your score’s improvement could help you stay motivated.

Master the stage: To hold off student loan delinquency, always be punctual with your loan payments. Consider creating a budget to ensure you don’t fall behind. Setting up autopay is another good strategy and could also net an interest rate reduction of 0.25% to 0.50% — just make sure not to overdraft your bank account.

5. Optimizing repayment

At some point after getting the hang of your student loans, your short-term repayment goals could change. Inevitably, you might want — or need — to optimize your repayment.

If you seek convenience, for example, there are two ways to turn your handful of loans into a single monthly payment:

  • You could group your federal loans with a servicer of your choice by employing a direct consolidation loan.
  • Somewhat similarly, student loan refinancing offers convenience and, potentially, cost-reduction. It allows you to consolidate your federal and private loans — and it can reduce your interest rate if you (or your cosigner) have strong credit.

If you must adjust your repayment to make ends meet, on the other hand, you have further options. You could reduce your federal loan payments using an income-driven repayment plan, or press pause on your payments with deferment or forbearance.

These payment postponement options, available in a more limited fashion from private lenders, could be especially helpful if you suffer a job loss or other economic hardship. If you don’t seek the support you need now, you could find yourself later on with the unhappy task of rehabilitating a defaulted loan, for example.

Master the stage: Obsessing over your budget will only get you so far, so keep in mind that optimizing your loan repayment could require increasing your income. The more money you have coming in — whether it’s from a raise, side hustle, tax refund or other windfall — the less you’ll have to sacrifice.

6. Zeroing the balance

Hopefully, mastering the first five stages of your borrowing life will pave the way for this sixth and final stage. By the time you get to this one, your route to being debt-free should be clear.

When you are within reach of your final loan payment, ensure that you have enough income and savings left over for emergencies. With that cushion confirmed, go ahead and click submit one last time, keeping a receipt for your records.

You might already be poised to build up your emergency fund, increase your retirement investing or accomplish another financial objective. Before moving onto your next big aim — perhaps a home mortgage? — take stock of how far you’ve come. A dispatched student loan debt is an occasion to be celebrated, especially with the people who helped you along the way.

Master the stage: Request a debt payoff confirmation from your lender so that a zombie debt doesn’t come back to haunt you.

Master every stage of your student loan experience

Where are you in the life cycle of a student loan borrower?

If you’re a high school or college student (or the parent of one), you know where to begin.

Even if you’ve already borrowed and don’t enjoy the fresh start of a wide-eyed teen, however, you can still master whatever stage comes next in your repayment. From receiving your loan to paying it off, take the next step to end your debt faster than you might have thought possible.

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