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Life Cycle of a Student Loan
by Roshan Tolani

Although loans have a negative stigma attached to them, not all loans are bad. Borrowing student loans can be a positive thing. They assist you in furthering your education and developing a good career. Student loans can be considered a positive investment provided they are the right loans for your financial situation. It is also important that you are educated about your loans and your responsibility to your lends. This article will help you understand how the loan process works in the life cycle of a student loan.

Phase 1: Identifying Need
  • You chose a school to attend and get accepted into a program of study.
  • You identify your need - the money that you need to carry out your education.
  • You make a measure of how much money you can arrange on your own from your savings, estimated family contribution, part-time or full-time work during school, etc. You also take scholarships and grants into consideration.
  • You figure out the gap between the funds you can acquire on your own or that you will receive from the school and the funds you still need. This amount will determine what you will likely borrow in student loans.
  • You educate yourself on the various types of student loans and their options.
  • You select a type of the loan and the lender.
Phase 2: Loan Application
  • You apply for the loan. (If you are applying for a federal loan, you complete a FAFSA.)
  • The school certifies that you are enrolled as a student at the school.
  • The lender approves your loan.
  • If it is a FFELP loan, one guarantor has to provide repayment guarantee.
Phase 3: Disbursement
  • The lender sends the loan proceeds to your school through check or electronic funds transfer.
  • The school may contact you to endorse the check.
  • After taking its share towards tuition, fees and other expenses, your school sends the remaining amount to you, or the school will send the check to you and you will be responsible to pay your tuition and fees.
  • In case of most federal loan programs, you will not receive loan proceeds if you happen to be a first-year undergraduate or a first-time borrower.
  • In case of Federal PLUS Loans, the lender sends its first disclosure statement to the parent's home.
  • If you are a parent borrower of Federal PLUS loan, you will begin repayment after full disbursement. Normally, the first payment is due no later than 60 days after disbursement. However, an in-school deferment may be an option.
  • For those loans which require credit-checks, the lender notifies credit bureaus about disbursement of the loan proceeds.
Phase 4: In School
  • You begin attending the school.
  • Under some federal loan programs the federal government pays the interest accrued during a student's schooling.
  • On other loans, the borrower pays the interest accrued while he or she is in school. If the borrower fails to pay interest, it is added to the loan balance that must be repaid once the student is out of school and his or her grace period ends.
  • Borrowers who have federal Stafford or federal Perkins Loans are considered "in-school" unless they are enrolled less than half-time or they graduate or withdraw from school.
  • Parent borrowers with federal PLUS Loans do not have an "in-school" waiver option.
Phase 5: Grace Period
  • Your grace period begins when you finish your education, you graduate, enroll for less than half time or withdraw from school.
  • Once your grace period begins, on federal loans, it could be from six to nine months before your first loan payment is due. Borrowers with private loans may or may not receive a grace period.
  • Parent borrowers with federal PLUS Loans do not have a grace period.
  • During the grace period, the lender sends you a repayment disclosure statement containing all the details of your loan obligations and the schedule for repayment.
  • At the end of the grace period, you receive your first bill.
Phase 6: Repayment
  • You begin to repay as per the terms of the loan.
  • You make payments each month until your loan is paid off.
  • Your lending institution sends a confirmation notifying fulfillment of your loan obligations.
  • The loan lender also sends the confirmation to credit bureaus that the loan has been fully paid off.
Disclaimer: This article is only for informational purposes and should not be construed or relied upon as legal advice. We do not make any claims, promises, or guarantees about the accuracy, completeness, or adequacy of any of the information provided in this article.


Article Title : Life Cycle of a Student Loan
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Education is one of the most basic right of any human, but with the increase in prices and the costs involved in education this has made these rights turn into a privilege which very few can enjoy. Any normal person today in the whole of United States has to take an education loan at one point of time to pay for their education fees.

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Schools Will No Longer Receive Paper FAFSA Forms
(September 20, 2007)

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