Private Student Loan Direct Deposit & Disbursem*nt: What to Know (2024)

After submitting your financial aidapplication and figuring out the aid you can expect, you might need private student loans. However, getting a private student loanisn’t just about receiving a check from the lender. Instead, a disbursem*ntprocess takes place, similar to how federal student loansare disbursed.

Here’s what to know about receiving private student loans, whether disbursed to your school or receiving private student loans direct-deposited into your bank account.

When do you need private student loans?

Even for undergraduate students, the cost of attendanceat many schools is beyond what can be covered with the loan amountsoffered by the federal government.

However, before getting private student loans, fill out a Free Application for Federal Student Aid(FAFSA) to see whether you qualify for aid. Your financial aid officewill help you figure out what grants, scholarships, work-studyoptions and federal loans are available to you. After maxing out these types of financial aid, you might need to apply for private loans.

A private student loancan close the gap to cover your cost of attendance, which often includes living expenses,as well as tuition, fees and books. Realize, though, that a private loan applicationis different from the a federal student loan. You need to prove your credit scoreand income is sufficient for a private loan, or get a cosignerto help you qualify.

Once you go through the application processand receive your loan for education expenses, the disbursem*ntprocess is similar to what you’d see with various loans from the U.S. Department of Education.

What is private loan disbursem*nt?

As with direct subsidized loansand unsubsidized loans, private loan disbursem*ntis the process of paying out funds to schools. Disbursem*ntoften depends on the type of student loan and when you need the money for the school year. Some schools have specific dates for disbursem*nt, so loan providerssend the money at that time.

Private loansare also disbursed based on lenderpolicies. Some lenderssend the money to students, while others send the money to the school.

How does private student loan disbursem*ntwork?

The lender communicates with your school if yourloan is approved. In some cases, the lenderrequires a school certificationof the amount needed to cover the cost of attendanceand other education expenses. Usually, your cost of attendanceis calculated each academic yearand loan disbursem*ntstake place each term. You usually receive disbursem*ntsat the beginning of each semester.

After the total amountneeded has been confirmed, many private student loan lenderssend the money directly to your school. The school then uses the student loan moneyto cover your incurred costs. If your school costs include tuition, fees, housing (living on-campus) and a meal plan, all of that might be taken care of by the student loans.

For borrowerswho live off-campus and don’t have all the same expenses, there might be money left over from the disbursem*nt. Even after paying for everything with on-campus living, there might be some amount remaining. This extra amount is often considered a “refund” by the school. You might receive a check for the remaining amount, or it might be directly deposited into your bank account.

It’s important to note that different lendershave different disbursem*ntpolicies. For example, Sallie Maesends a certification to the school after loan approval. The school must complete the certification before the funds are sent.

Earnest has a three-day cooling period for private student loansafter the certification. With Discover, if you need funds outside the disbursem*ntschedule, you need to go through your financial aid officeto arrange it.

Getting your private student loan money

Althoughsome lendersmight give the entire amount to the borrower, most private loan providersinitially send the money to the school.

When a lendergives the money to the student directly, there’s no guarantee that the money will go toward education expenses. In order to reduce risk to the lender, most loan programsprefer to just send the money to the school, where it can be put in a student account. Any overage can be refunded to the student later.

As a result, if you need money to pay for housing or other related expenses, it’s important to plan ahead. After the funds are disbursed to the school, it can take days — or even weeks — for you to receive the remainder. Have a plan to cover costs until you get your refund money.

Many schools allow you to choose how you want to receive your refund. Often, they let you choose between a check or direct deposit. If you choose direct deposit, the school will automatically send the money once your account is settled and your credit balanceis finalized.

Alternatives to private student loans

Because private student loanscome with different repayment optionsthan federal loans, some experts suggest that you max out federal borrowing. For graduate students, it might make sense to get Direct PLUS Loansbefore turning to private loans, especially if they don’t qualify for private loans and can’t find a cosigner. In other cases, private loans make sense if you can get a better interest ratewith a higher credit score.

However, before applying for any private student loans, check to see if you can get a scholarship or grant based on financial needor merit. The less money you have to repay, the better off you’ll be in the long run. Check the repayment termsof your private student loansto find out if there’s a grace periodor defermentoption, just in case you need it.

If possible, you might be able to work while in school to reduce the need for private student loans. Personal savings, including using a 529, or getting help from your family can also help you reduce the need to borrow to pay for school.

Bottom line

Undergraduate, graduate and professional studentsall need access to funding while attending school. Once loan limitsfor federal loans are reached, and after other sources of funding are maxed out, private loan optionsmight be necessary.

When choosing private loans, understand the repayment plans, look for fixed interest ratesand consider how you can best use loan fundsto avoid getting too far into debt.

Don’t forget to find out how disbursem*ntworks in conjunction with your enrollment, and when you’ll need to start making monthly payments. You can get help and guidance on a number of student loan topics, including whether it makes sense to refinance, by working a Student Loan Planner consultant.