The Student Loan Life Cycle: What It Is And How It WorksI strongly believe that the main reasons borrowers get in trouble with student loans are:

  •  A lack of understanding of how they work.
  • A high level of debt relative to the starting salary after graduation.

In my own case, completed my undergraduate degree program with a much higher than average $58,000 of Federal, private and international student loans.

But, even though I had so many loans, I never really had a good grasp how they really worked. All I knew was that I would borrow money to cover my tuition and related college expenses and that I would pay them back when I got a job after graduation, for at least ten years.

This seemed like a simple enough agreement, at the time, but once I started to repaying my student loans, I found out that student loans were everything but simple.

This is why one of the goals of is to educate parents, prospective and current college students, and graduates, about how student loans work so that they can create a solid strategy to avoid them, minimize taking them out, or pay them off, quickly.

To that end, I’ll explain what the student loan cycle is and how it works.

What Is The Student Loan Life Cycle

The student loan life cycle is the series of stages that student loan progresses through between loan initiation and the final payment.

Typically, a student loan life cycle has these four stages:

  1. The In-School Period;
  2. Post Graduation Grace Period;
  3. The Optional Post Graduation Deferment Period; and,
  4. The Repayment Period.

The Student Loan Cycle | - Pinterest

Once a student loan is initiated, it progresses through the different stages of the life cycle. The length of each stage depends on the enrollment or graduation status of the student. Each stage is described in more detail, next.

The Stages of the Student Loan Life Cycle

Stage 1 – The In-School Period

This stage represents the time a student in enrolled in college. For full-time college student pursuing a bachelor’s degree, this stage is typically 4 years.

Stage 2 – Post-Graduation Grace

Once a student graduates, the student loan enters the post-graduation grace period, which is usually 6 months.

Stage 3 – Optional Post-Grad Deferment or Forbearance

Although and optional, many student loan borrower opt for this addition delay in making payments, after the end of the grace period. The length of this deferment or forbearance period depends on eligibility requirement and time limits established by the lender.

NOTE: Forbearance and deferment provide relief from payments to the borrower. U.S. Federal loans the eligibility and limits for this option can be on the Student Aid Deferment and Forbearance webpage 
Stage 4 – The Repayment Period

This stage represents the period where payments toward principal and interest are required, on a monthly basis until the loan is paid off, discharged, forgiven or settled. The length repayment period will depend on the promissory note’s terms and conditions, and the type of repayment plan selected by the borrower (when different options are available).During each of these stages, the f you have a student loan, you should be aware of which of these stages your student loan is in, and what your

It is important to understand the student loan cycle, because whether a borrower has to make payments to a student loan is dependent on the which stage of the cycle it is in. The sum of the length all of these stages will also determine, the lifetime of a student loan. That is how long the student loan obligation will exist.

The Student Loan Lifetime

To illustrate how the stages of the student loan lifecycle impact the lifetime of a student loan, let’s assume that borrower takes out a student loan to fund a 4-year degree. After graduation, the borrower starts making payments, as scheduled at the end of a 6-month post-graduation grace period and continues for 10-years standard repayment plan. In this case, the lifetime of the loan is 14 years.

Student Loan Life Cycle for Standard Student Loan Repayment Plan

 Your Student Loan LifeCycle

It is important to understand what the life cycle is for your own student and how the length of the different stages can impact its lifetime. When you take out student loans to fund a 4-year degree, for instance, that already represents a more than decade-long financial commitment that can be made even longer, if you:

  • Spend longer than expected in school;
  • Opt to put your loans in deferment or forbearance; or,
  • Choose and extended payment plan, beyond 10 years.

Among other factors (that I will cover in separate posts). I hope you found this post useful. If you did please let me know in the comments below! ~Melisa Boutin
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