Paying for College

Understanding Private Loans

Topics explained include the amount to borrow, monthly payment, application timeline, application process, and getting the loan funds
Mom and teenage daughter working on laptop to understand private loans

If you're planning to borrow a private loan, you need to understand how they work. We provide some helpful guidance below. But remember, we strongly encourage you to fill out the FAFSA® in order to borrow your Federal Direct Student Loan before considering private loans. Federal loans come with certain benefits not available through private loans.

Amount to Borrow

You may borrow a private loan amount up to the amount of the school's annual cost of attendance minus any financial aid you received. That means you can borrow to cover the cost of items not included on the college bill, such as off-campus housing or books, as long as those amounts are included in the cost of attendance. But only borrow what you need! Every dollar you borrow will need to be paid back with interest.

Monthly Payment

Before you borrow, estimate your monthly loan payment to make sure the amount will fit within your budget. And remember, if you're borrowing for the first year of college, you'll likely have to borrow for subsequent years, so multiple that loan payment by the number years you plan to borrow. If you're a student, consider what you might do for a job after graduation and find out your projected salary to determine what monthly payment amount might be feasible.

Application Timeline

You should wait to receive your college bill to find out your balance due at the school before you apply for a private loan. But be sure to apply at least two weeks before the bill due date. Colleges will bill you for each semester separately, however if you need a loan for both semesters, apply for the full-year amount at once. The college will divide the loan between the two semesters. Your fall semester bill will likely arrive in June or early July, and be due in late July or early August. Your spring semester bill will arrive in late November or early December and probably be due in late December or early January.

You should apply for loans one year at a time. And if you find you need additional funds in the middle of an academic year, you can certainly apply for a loan at that time.

Application Process

You'll submit your loan application through the lender's website, and likely be told immediately if you're approved. The school will then certify your intended enrollment for the upcoming semester or year and that the amount applied for is equal to or less than the cost of attendance minus any financial aid received.

Getting Your Funds

Once you're approved for a loan, the lender will send your loan funds directly to the college on a pre-determined disbursement date, usually right before classes begin. If you borrowed more than the amount you owe to the college, you'll have a credit on your account, which you can usually access on the first day of class. Check in with your college to find out the process to get your funds.

As you consider your private loan options, we invite you to watch our Comparing College Loan Options webinar. It reviews key loan terminology, provides tips on wise borrowing, and walks you through how to select the best college loan for your family.

Watch our Comparing College Loan Options webinar