When figuring out how to pay for college, many students turn to student loans to finance their education. The student loan process might seem complicated and overwhelming at first, but it doesn’t have to be. Breaking the process down into steps makes it clearer and less intimidating.
One thing to note before we get started – while there are two different types of student loans (see Federal vs. Private Loans: What’s the Difference?), we only focus on the private student loan process in this article. Before applying for a private student loan, it’s a good idea to see whether you can reduce the cost of your education through other forms of financial aid such as grants, scholarships, and federal loans.
By understanding how the student loan process works, you can make better financial decisions instead of being overwhelmed with confusion. Let’s walk through the process in detail.
Private Student Loan Process: Step by Step
Before applying for a private student loan, it’s important to do your research on the private student loan landscape and explore all of the options available to you. Look at multiple lenders and review the products they offer. Do the options fit your needs and your lifestyle?
Tip: For help in understanding what you should look for, download “10 Things to Know When Shopping for Student Loans.”
Some lenders offer tools early in the process to help you make a decision. At College Ave Student Loans, we provide a student loan calculator that allows you to see how different loan repayment options will affect your monthly payment and total cost and a pre-qualification tool to see what rates you can expect before applying.
Once you find a lender you’re interested in, the next step is to submit an application.
Once you select a lender you’re interested in, it’s time to fill out an application.
While the amount of information required varies by lender, in general, applications request contact information, personal information (date of birth, social security number, household income, etc.), and school/loan information (school you’re attending, expected graduation date, cost of attendance, requested loan amount, etc.).
Most private student loan applications can be submitted online and take an average of 15 minutes to complete. At College Ave, we’ve simplified our application so you can get an instant decision in as little as 3 minutes.
Before formally submitting your application, you will receive a general disclosure document (Application and Solicitation Disclosure) showing things like an interest rate range and example repayment options. This is a required form that includes other details like federal loan options and general student loan information.
3) Approval Decision
After reviewing the disclosure and submitting your application, the approval process begins. Some lenders use a manual review process that could take a few days while others produce an instant decision. At College Ave, we provide an instant decision.
During the approval process, the lender evaluates your credit history, among other criteria, to determine whether to approve you for the loan. This decision can produce three results: denied, approved, or eligible with a creditworthy cosigner.
If you’re denied, you’ll get a letter in the mail with the specific reasons why your application wasn’t approved. If you’re eligible with a creditworthy cosigner, it means you aren’t approved to take the loan out by yourself (which is common for students who often have limited credit history and income), but you can add an approved cosigner who has good credit and sufficient income who will take equal responsibility for the loan with you. Adding a cosigner can increase your chance of being approved and/or receiving a lower interest rate. If you are approved (congratulations!), it’s on to the next step.
4) Accept and Sign
Once approved, the next step is to review and accept the terms of the loan. Different lenders allow for varying flexibility when choosing the terms of the loan.
Some lenders allow you to configure your loan to better suit your goals – i.e., you get to pick your repayment plan and term – while others select your options for you. Options of the loan may include choosing a fixed or variable interest rate, the repayment term length, a graduated repayment plan, and/or making in-school payments.
After you finalize the terms of your loan, you receive a second required disclosure, this time with specific information regarding rates, fees, and other terms of the loan. This disclosure shows you all of the information about your specific loan and how much it will cost. After you accept the terms of the loan, you’ll sign the remaining loan documents to continue. Most lenders will let you sign your loan documents electronically so you can skip printing and mailing.
5) School Certification
After you sign your loan documents, you’ve largely completed your responsibilities in the process. Your lender and school will take care of the rest (that is until your repayment begins!).
During certification, the lender will send your loan details to your school to confirm several things including your enrollment status (half-time or full-time), your anticipated graduation date, and your requested loan amount. The loan cannot exceed the school’s calculated cost of attendance once they factor in other loans or aid you’ve received.
Your school can certify the loan as is, certify the loan with changes, or not certify the loan at all. When certifying a loan with changes, your school can lower the amount of the loan if it exceeds the maximum cost of attendance (minus other aid), or they could adjust things like your expected graduation date.
If your school makes changes to the loan, your lender will often need to generate new disclosures to make sure you have the latest information. You may need to accept the new disclosure, so keep an eye out for communications from your lender. The timing of certification is determined by the school, and the process typically takes at least 7 to 10 days. Sometimes it can take longer, especially if it’s a busy time of year when many students are applying for loans.
Once your loan is certified by your school, your loan will be scheduled for disbursement. Student loan disbursement is how your school gets the funds you applied for to pay for your education. Private student loans are typically sent straight to your school; they are not sent directly to you (the student).
Your school sets the disbursement date, which is usually around the beginning of the semester regardless of when you applied for the loan. However, it’s best not to wait too long to apply to avoid any unexpected delays.
Typically, your private student loan lender will inform you when your private student loan is disbursed, and often it will be sent to your school in two disbursements if you applied to cover more than one term. For example, if you applied for a loan to cover both fall and spring, half of the loan money would be sent in the fall and the rest would be sent in the spring.
Once your loan is disbursed and your tuition is paid, the next – and last – step in the process is for you to repay the loan. When this step takes place is based on the repayment plan of your loan.
Lenders offer different kinds of repayment plans, and it’s important you understand exactly what is required of you based on your loan terms. Some lenders offer in-school repayment plans, meaning you make monthly payments during school to reduce the overall cost of the loan. You can also choose deferment, which means you aren’t required to make payments until you graduate or are no longer enrolled.
If you select a deferred plan, you’ll typically have a grace period after you graduate (or leave school) before you enter your repayment period.
To see how you can reduce the cost of your student loan, check out these tips.