Financing can be an important factor in a person’s education and career goals. One question, though, is how a student loan works. Below, we take a look at the student loan process, from initial application to repayment period, and break down what you can expect to find at each step of the way.
Step 1: the application
The first aspect of a student loan is the application. This can vary from lender to lender, but for private lenders in general, you’ll want to make sure you have your personal information and program information on-hand when applying. Many private lenders will also pull your credit, as they often base approval on an applicant’s credit history — however, with Climb loans, we only perform a soft credit pull upon the initial application. We don’t perform a hard pull until a loan is funded, so you can apply to check your rates with no impact to your credit score!
Step 2: your loan documents
Once your application has been approved, you’ll be sent several documents containing important information about your loan. These include your Approval Truth in Lending Disclosure, which has a breakdown of what you’ll pay and when payments will be due; the Master Promissory Note, where you can find all the responsibilities you’ll have as a borrower and all the terms of the loan you’re agreeing to; and an Auto-Debit Authorization Form (ACH), which authorizes automatic loan payments to be made from your bank account. If you have a co-borrower, you’ll also receive a Notice to Co-Borrower, which contains all the necessary information about cosigning a loan.
You’ll want to read all these forms carefully, and once they’ve been reviewed and signed, you’re all set!
Step 3: sending the funds
After all the necessary forms are properly signed, your loan will be finalized, and the next step is for funds to be sent. For some loans, the money will be sent to the student, and it’s up to them to make sure the tuition is then given to the school. However, with Climb loans, we send tuition funds directly to the school, so you don’t have to worry about it! So, after the loan is finalized, you won’t need to take any action until it’s time to start making payments.
Step 4: repayment
Depending on your loan product, payment amounts and term length will vary. Some loans have no deferral period, so you’ll begin principal and interest payments immediately. This will allow you to pay off your loan faster, which means you’ll ultimately pay less in interest — on the other hand, you’ll be making full payments even while in class. If you have a fully-deferred loan, though, you won’t have to make any payments while in class and for a few months after. This will let you focus on school without worrying about repaying your loan. However, you’ll want to keep in mind that interest will still accrue during the deferral period. So, interest is building up while you’re in class, and you’ll be faced with a higher principal amount once repayment begins.
A middle-ground option between these two is a loan with an interest-only deferral period. Here, you’ll make reduced, interest-only payments while in class and for a few months after. This way, you won’t have to worry about making full payments while in class, and your principal amount won’t build up either. Ultimately, you’ll want to look carefully at your finances and your goals to decide which is the best repayment method for you!