How Are Private Student Loans Disbursed
How Are Private Student Loans Disbursed?
A private student loan is a type of loan that you can take out to help pay for college or other post-secondary education. If you have a good credit score, you might be able to qualify for a lower interest rate than you would with a federal student loan. Private student loans are also typically disbursed in one lump sum rather than in monthly installments like federal loans. This means that once your application has been approved and your funds are released, all of your money will be available at once.
What is the process for getting a private student loan?
The first thing you need to do is apply for financial aid and submit your FAFSA (Free Application for Federal Student Aid). You’ll need this information before you can apply for any kind of student loan. If you’ve already applied for financial aid and received an award letter from the government, then it’s time to start looking into private lenders who offer student loans. You can get quotes from different lenders using an online tool like Credible’s School Finder or by calling them directly. Once you’ve found some companies that offer private student loans, narrow down your list based on interest rates and repayment terms.
How Are Private Student Loans Disbursed
A portion of a federal student loan that the school pays out by applying the funds to the student’s school account or by paying the borrower directly. Students generally receive their federal student loans in more than one disbursement.
Student loan disbursement is how a lender provides your loan proceeds—or the amount of the financial aid you are approved for—to the school for payment of qualified education costs. But it starts long before the loan money is handed over from one party to the next.
Student loan disbursement begins when you apply for student loans. The lender reviews your application details, either through the FAFSA or through a private lender application, and determines if you are a good fit for receiving student loan funds.
Private Student Loan Disbursement
Private student loan lenders handle loan disbursements differently. Each lender may have a different way that loans are provided after the initial application and approval process is complete. Private student loans are approved based on credit history, income, and cost of attendance. Once a student is approved for a loan, the process may involve a direct transfer to the student as a direct deposit into a bank account, or a school certification.
Direct-to-student, or direct-to-consumer, private student loans are disbursed to the student, not the school. The lender does not need to certify the loan with the school, but this puts the student in charge of using the funds to pay for fees and tuition in full. The borrower is responsible for making the necessary payments to their school’s financial aid office.
The process for a school-certified private student loan works similarly to federal student loan disbursement. The lender approves the loan and then sends the proceeds directly to the school. The school confirms the student’s enrollment status and the anticipated graduation date, and in some cases, the cost of attendance. Schools can certify the loan as it is, or request changes based on the student’s status. This process can delay when the funds are received on behalf of the student.
Once the loan is certified, funds are then sent to the school. Tuition and fees are paid, and a refund check for the remaining balance is sent to the student from the school. In most cases, private lenders let students know when funds have been paid to the school. Then, they are aware that a refund check of the remaining amount should be on its way.
Students using private student loans should check with the lender to see if they require the certification process or if they should be expecting a check to cover the expenses of their education. The process is different for each lender, so learn these details in advance.
best private student loans
Private student loans are best used to pay college costs after you’ve borrowed the maximum you qualify for in both subsidized and unsubsidized federal student loans.
Private student loans come from banks, credit unions and online lenders, and unlike federal student loans for undergraduates, they require a credit check. That means most undergrads will need a co-signer in order to qualify. Private student loans also are more expensive than federal loans—especially now that federal loan rates are at historic lows—and typically don’t offer the flexible repayment options their federal counterparts do.
That’s why there is no five-star lender on our list of private student loans: In the vast majority of cases, the best college financing option is a federal student loan.
| Lender | Best for | Rates (APR) | Our Rating | |
|---|---|---|---|---|
 | Best Overall | 1.19% – 12.99% | 5.0 | View Rates |
 | Best for Cosigners | 1.13% – 12.59% | 4.8 | View Rates |
 | Best for No Fees | 0.94% – 12.78% | 4.3 | View Rates |
 | Best for Forebearance Flexibility | 1.64% – 12.76% | 4.7 | View Rates |
 | Best for Member Benefits | 1.20% – 11.23% | 4.1 | View Rates |
Reviews of the five best private student loans
Check out the reviews below for an in-depth explanation as to why we selected each lender as one of the best private student loans. If you’re interested in learning more about a specific lender, you can jump to that review by clicking on its name in the list below.
- Best overall: College Ave
- Best for cosigners: Sallie Mae
- Best for forebearance flexibility: Ascent
- Best for member benefits: SoFi
- Best for no fees: Earnest
College Ave
Our Pick: Best Overall
5.0 LendEDU Rating
Why It’s One of the Best
College Ave is our choice as the best overall lender for the second year in a row because it has competitive rates, lets you choose your repayment term, and can cover up to 100% of your school-certified cost of attendance.
Variable Rates
1.19% – 11.98% APR
Fixed Rates
3.49% – 12.99% APR
Loan Amounts
$1,000 – 100% of school-certified cost of attendance
College Ave is an online student loan lender based out of Wilmington, Delaware. The lender’s sole focus is to make a college degree more attainable by helping students and parents afford the rising cost of higher education.
When you borrow with College Ave, you’ll get to take advantage of its Multi-Year Peace of Mind™. Thanks to this benefit, 90% of undergraduate borrowers are approved for additional loans for future years when applying with a cosigner.
That’s not the only benefit of College Ave. It also allows you to select your repayment term and explains how the term and plan you choose impacts the long-term cost of your loan.
Sallie Mae
Our Pick: Best for Cosigners
4.8 LendEDU Rating
Why It’s One of the Best
Sallie Mae is our choice as the best for cosigners due to its short cosigner release period. Cosigners can be released from a Sallie Mae student loan after the borrower makes just 12 consecutive on-time monthly payments.
Variable Rates
1.13% – 11.23% APR
Fixed Rates
4.25% – 12.59% APR
Loan Amounts
$1,000 – 100% of school-certified cost of attendance
Sallie Mae, the most widely known student loan lender, is based out of Newark, Delaware. When it was founded, it was a government entity in charge of servicing federal education loans. Then, between 1997 and 2004, Sallie Mae transitioned into a fully privatized bank and began offering private student loans.
Today, Sallie Mae controls the largest share of the private student loan market. It’s also expanded its product offering to include credit cards, savings accounts, and more.
Sallie Mae borrowers can enjoy benefits including four months of free Chegg® study help, Multi-Year Advantage, and no origination or application fees. With Multi-Year Advantage, returning undergraduate students with a cosigner have a 95% approval rate for a future loan.
Earnest
Our Pick: Best for No Fees
4.3 LendEDU Rating
Why It’s One of the Best
When Earnest says it doesn’t charge any fees, it means it. There are no origination, application, prepayment, or late payment fees.
Variable Rates
0.94% – 11.44% APR
Fixed Rates
3.24% – 12.78% APR
Loan Amounts
$1,000 – 100% of school-certified cost of attendanc
Earnest is an online lender based out of San Francisco, California. The lender was founded with the goal of making higher education accessible and affordable for everyone.
One of the main benefits of taking out a loan with Earnest is that there are no fees. Many lenders market their student loans as having no fees to apply, but this only refers to origination and application fees. With Earnest, you won’t be charged any fees to apply, plus you won’t be charged for paying off your loan early or for any late payments.
In addition to no fees, Earnest offers several other benefits, like a longer than average grace period and the ability to skip a payment once per year.
Ascent
Our Pick: Best for Forbearance Flexibility
4.7 LendEDU Rating
Why It’s One of the Best
Ascent allows borrowers experiencing financial difficulty to enter temporary hardship forbearance for up to 24 months. Other options include administrative and natural disaster forbearance.
Variable Rates
1.64% – 9.23% APR
Fixed Rates
4.78% – 12.76% APR
Loan Amounts
$2,001 – $200,00
Ascent is an online student loan lender based out of San Diego, California. Its student loan offering is unique compared to other lenders in that it offers three different options. These options include its traditional cosigned loan, non-cosigned credit-based loan, and non-cosigned future income-based loan.
Borrowers looking for repayment protection will be happy to know that Ascent offers several deferment and forbearance options. Ascent’s college loans include active-duty military deferment, in-school deferment, and residency or internship deferment.
For those dealing with financial difficulty, loans include temporary hardship forbearance, administrative forbearance, and natural disaster or declared emergency forbearance. All three of these options will extend the repayment term on your loan.
SoFi
Our Pick: Best for Member Benefits
4.1 LendEDU Rating
Why It’s One of the Best
SoFi members enjoy a wide range of benefits, including a 0.125% rate discount, career coaching, unemployment protection, and more.
Variable Rates
1.20% – 11.23% APR
Fixed Rates
4.23% – 10.66% APR
Loan Amounts
$5,000 – 100% of school-certified cost of attendance
SoFi is a mobile-first online personal finance company based out of San Francisco, California. It made a name for itself in 2012 as the first company to refinance both federal and private student loans. Since then, it has expanded into nearly all consumer lending markets with over $50 billion in loans funded.
Without a doubt, one of the biggest draws to borrowing from SoFi is the wide range of benefits available to its members. These benefits fall into three categories: money, community, and career.
Money benefits include financial planning advice from credentialed advisors, referral bonuses, and member rate discounts. Community benefits include attending networking events, dinners, and happy hours. Career benefits include tools to help you earn a raise, personalized career advice, and an unemployment