How Do Private Student Loans Work?

Episode #25. Host Jonathan Hughes is joined by MEFA’s in-house loan product experts, Frank Cavanaugh and Meg Villavicencio, and MEFA’s Director of College Planning, Education, and Training, Julie Shields-Rutyna. Frank and Meg discuss private student loans, including when families can start applying, what determines if applicants are approved, what kind of rates and terms they may qualify for, and how to compare loan options. Jonathan and Julie answer listeners’ questions about assets on the FAFSA and discuss steps a student needs to take after depositing at a college. If you enjoy the MEFA Podcast, please leave us a review.


Jonathan Hughes: Hi everybody. And welcome to the MEFA Podcast. My name is Jonathan Hughes.
Julie Shields-Rutyna: And I am Julie Shields-Rutyna.
Jonathan Hughes: Hey, Julie, how are you?
Julie Shields-Rutyna: Hi, Jonathan. Doing great.
Jonathan Hughes: Well, we have a great show today. It's our final episode in our series, How to Pay for College: A Guide for High School Seniors and their Families. Now we've had two episodes where we've talked about things like what you might find in your financial aid offer and the various ways families pay the balance due.
So if you want to check those out, please check our feeds for that. Today, we're going to be talking to the families who may be getting ready to make their deposits, or maybe they've already made their decisions and their deposits. And a lot of those families want to start lining up financing, as in loans or specifically, sometimes private loans.
So we have as guests, Frank Cavanaugh and Meg Villavicencio. They are in-house MEFA Loan application experts and MEFA Loan product experts. So we're going to be talking to them about private student loans and about MEFA Loans. When could families start applying, what determines if they were approved, and what kind of rates and terms they may qualify for, and also good ways to compare loans.
So it's a lot, but it's really good information. So you want to stick around for that. So before then, as always, Julie and I are going to talk about something else first, aren’t we Julie?
Julie Shields-Rutyna: Yes indeed. So as you alluded to earlier, families, once they make a decision of what college the student is going to attend, they'll have to put a deposit down and hold the spot at their student's college.
So typically families do this by May 1st, which is the national deposit day. Some families do that before, but that's usually kind of the deadline where, you know, people have to make a decision. So once families do that, I think they breathe a little bit of a sigh of relief, both students, parent, but you know, because they've taken care of this big admissions process, financial aid process, and that's been probably consuming their thoughts. So a little bit of a sigh of relief, a little bit of relaxation. But that doesn't mean that that's the end. There are still other things to do.
Jonathan Hughes: And you speak from experience on that, don't you?
Julie Shields-Rutyna: I do. I do. And I still have a student in college. So yeah, let's talk a little bit about everything that a family would need to do between this time after the deposit and before enrolling in the fall.
Jonathan Hughes: Okay. So just when you thought you were done. But what is the first thing that we're going to talk about?
Julie Shields-Rutyna: Yeah. Well, one thing that's important to talk about is that many, many families waive the child's health insurance that is listed on the bill. So that comes as a charge on the bill because it's required that students are insured. And so health insurance is automatically included as part of that college bill.
But if a student has insurance through their parents' plan, which many do, and they can be on their parents' plans until they're 26 years of age. So if that's the situation, then they should waive that charge on the bill and hopefully there'll be able to easily see what, that there's a form they can use to waive that charge.
And they usually just have to show that they had have the other insurance. If they don't see. They can just call the college and ask about the form to waive the insurance and prove they have the other insurance and they will be all set. So they just want to make sure they do that sometime in the summer so that when they go to pay their bill, that charge is not there.
Jonathan Hughes: And, and colleges will have deadlines, right, where people have to waive that by. Is that correct?
Julie Shields-Rutyna: They will. They will. But I think the deadline will be later as you get toward the fall. So if they do that over the summer, they should be just fine.
Jonathan Hughes: Okay. And so how much money might that save a family?
Julie Shields-Rutyna: You know, I guess I've seen health insurance charges of the hundreds to thousands of dollars actually.
So that could be a big charge.
Jonathan Hughes: So, waive the health insurance, if your child is going to be on your health insurance. So what else?
Julie Shields-Rutyna: And then another thing, and this is sometimes a surprise to parents, having to do with the student's academics while they're at college, their grades, and will parents be able to see the students' grades?
So the truth is if a student is 18, when they go to college, that means they are legally adults. And so even if parents are paying the bill for college, the college cannot share the student's grades and other personal information due to FERPA laws. So if parents want to have access to all of that, the student has to sign a waiver granting you access.
So that would be a nice conversation for students and parents to discuss and to make sure that if that's what you decide as a family, you want all of that shared, that the student makes sure that they do sign a waiver granting you access to things like grades.
Jonathan Hughes: Yeah, that's a good conversation for students and parents to have with each other, and not with me when you call. So that would be nice. But I can see that, I know from experience that that's a sticky issue sometimes. What else is there?
Julie Shields-Rutyna: So then a couple of other things related to paying that bill. So, you know, I know we're going to have Frank on here and he's going to talk a lot about loan financing and that's so important.
But something else to think about is just keeping loan debt down. And so to that end, all colleges usually have an interest free monthly payment plan option. And so that's just a good thing to look into as a family. Maybe you could think about in your monthly budget, would it be possible to have a little extra money that you could pay to the school on a monthly basis?
And if so, it might be a good idea to sign up for the colleges monthly payment plan. And you can sign up, the college may send you information or you can ask. And some of these plans go from anywhere from 9 to 10 to 12 months. And of course the earlier you enroll, the smaller that monthly payment may be could be.
But definitely anything that you paid toward that monthly payment plan, then you don't have to borrow. So just a thought. Think about if that's a possibility and look into the monthly payment plan as a way of paying.
Jonathan Hughes: Yeah. I'm still surprised, actually, when I talked to parents, how many of them don't know anything about interest free monthly payment plans.
So definitely like to mention that whenever we can, because it is good, as you say, to pay what you can out of pocket before you move to borrowing. And since we're talking about loans too, you want it to bring up something regarding the federal student loans?
Julie Shields-Rutyna: Yes. One of the big questions I receive often is, okay, we had these federal student loans on the award offer. Now how do we get those loans? And so basically the college will let you know to go to a website and it's the website. So it's the federal student loan website. And the student will do that over the summer. And they have to do what's called an entrance interview.
It's really just learning information about the federal student loan, about interest rates, about repayment option choices, about when payments will be due. All of that. And so it's really a good thing for the student to actually go through and understand, I'm borrowing a loan, and these are all of my terms and options for that loan.
So again, I think in the last question. We said, they're legally an adult. You know, they really have to have to take on all of these things. So they will do that. And then they can actually sign a master promissory note right online as well. And then when that is done, that comes right off the bill too. So that we'll make sure that the bill is accurate.
Jonathan Hughes: And one question about that is do they have to do this every year?
Julie Shields-Rutyna: So it's a master promissory note. So, the entrance, all of that is just at the beginning. They'll do that again at the end for the exit. But since it's a master promissory note, that allows them to borrow each year.
Jonathan Hughes: Yeah. Okay. Now, since we're talking about students, the first thing that I thought of when I thought of what happens after you put the deposit down in between that time and when you attend school is orientation. Right?
Julie Shields-Rutyna: Exactly. Yeah. And I think orientation is great. I think, I guess from personal experience, I know that maybe sometimes students feel anxious about doing that, you know, going to the college ahead of time and meeting other students who are going to be on the campus with them. But I really think it is such a great thing to have a day or a couple of days before they go in the fall. So, you know, when they get there, they might meet some of their fellow students.
They might even meet someone who's going to be the roommate or make a plan with someone to be roommates. A lot of times they'll go through and actually register for classes. And that way they're doing it with advisors nearby to help them do that. They can check out the dorms, clubs at the school, things they might want to get involved in when they get there in the fall.
So I really get excited when I hear that a student is going to orientation, even though I know it can be a scary thing to do. And I think students should also just keep in touch with the colleges. Maybe on social media, maybe through the web portal that the student puts out, just to make sure they're always looking at all of the information that the college is sending them and they don't miss a form or miss a chance to attend something before they get there in the fall.
Jonathan Hughes: Yeah. I remember my orientation. Do you remember your own orientation, Julie?
Julie Shields-Rutyna: I actually do. I do. I am friends with a couple of people I met at orientation.
Jonathan Hughes: Yeah. Me too! Anything else then from your experience?
Julie Shields-Rutyna: I guess just as a parent, just to say that I guess it really depends on the personality of the student. But yeah, that students might be a little nervous making this big leap. And so just to be aware of that, to be aware.
We can also just talk about some of the resources we have from MEFA. There is a blog post that was written recently of what to do after you deposit. And so we can maybe put that in the show notes. And also we recently held a webinar on appealing your financial aid offer. And we had guests from financial aid offices at various Massachusetts colleges giving their views about the practices of their colleges.
So if that's what you're going through right now, wondering about that, I would highly encourage you to view that and get the advice of those experts on how to appeal and when to appeal and what, you know, what those college appeals are all about.
Jonathan Hughes: Yeah, we'll put that in the show notes.
Thank you. So now we head to the MEFA mailbag. And these are questions that have come in from customers over the past few weeks and answered by our college guidance experts. Now remember as always, if you have any questions, please reach out to us at Or you can call us at 1-800-449-MEFA. Or you can reach us on social media on Facebook at MEFAMA, on Twitter @MEFAtweets, and on Instagram at mefa_ma.
So today's question comes to us from Michelle. And actually I was a little surprised here when I was looking over the questions that we've been receiving over the past few weeks. I was surprised to see a few questions, very similar to this one this week. So yeah, so I thought I’d include it.
It's a bit of a long one. So bear with me. But she says, we will be filling out the FAFSA in October this year for my daughter. I received some inheritance money from my father this month. And I'm wondering how this will affect her FAFSA and CSS Profile®. I've read that inheritance money is counted as an asset, and that 5.6% of our asset amount would be added to the EFC per the FAFSA. And site note, this is something we know from previous shows, and that the CSS Profile may apply 5% of the amount of the EFC as well. Is that correct? And then also, the inheritance I've received so far is an advanced payment as the estate settlement has not been finalized and probably won't be finalized until next year. So does the FAFSA directly ask about inheritance money or is it just included in our asset assessment? And do I have to report the inheritance if the estate settlement is not finalized? Tough question.
Julie Shields-Rutyna: Yeah. Well, that's a great question. So yes.
Basically what is asked about on the FAFSA is all about a family's income and assets. And the assets, you know, can be all types of assets, savings, checking investments. But not any retirement accounts. And on the FAFSA, nothing about the home that you live in, although investment properties, other investments are counted.
So basically the questions are just about the assets that you have on the day you complete the form. So if you received an advanced payment on inheritance and you put that in your bank account, or you invested the money, then yes, that's part of your assets and you'll report it on the FAFSA. But anything that isn't there, you don't have to report. But you know, if it is there next year, then you can deal with that next year.
So that's how I would answer that question.
Jonathan Hughes: And then in terms of where the inheritance, they don't ask specifically about inheritance, it's just part of the assets, is that correct?
Julie Shields-Rutyna: Exactly. Exactly.
Jonathan Hughes: Okay. And one final little piece there. I know there's a lot in that question. FAFSA we know is 5.6% tops that they'll take of the asset, and Profile we understand is about the same.
Julie Shields-Rutyna: Yes, it’s about the same. Yes, exactly. So overall, a small percentage. But if the inheritance is large, I guess it could be a significant amount of money.
Jonathan Hughes: Right. Exactly. Okay. So thank you Julie. Now remember, if you have any questions you can call us up at 1-800-449-MEFA or you can email us at
We have a bench of college guidance experts waiting to answer your call. So I always almost say a bunch of college guidance experts waiting to answer your call. We have that too. They’re on a bench. There are a bunch of us on a bench. Now let's go to my interview with Frank Cavanaugh and Meg Villavicencio from MEFA.
Our guests today on the MEFA podcasts are Frank Cavanaugh and Meg Villavicencio. They are our specialists in credit decisions. They can talk to us about the timing of college financing, loan features. If you're a parent of an incoming freshmen, these are the folks that you want to hear from. Frank, Meg, thank you very much for joining us today.
Meg Villavicencio: Thank you, Jonathan.
Jonathan Hughes: So first question, and it's one that most parents ask first. When should parents start applying for loans for the upcoming year? Here we are. We're recording in mid-April, and we've already had parents for a few weeks asking us if they can apply and when they should start applying for the upcoming year. So how long does that process take?
Meg Villavicencio: That's a good question, Jonathan. We do hear that a lot. MEFA’s application is now open for the upcoming 22-23 academic year. However, we do urge families to wait to receive their bills so that they can know how much they should apply for. With a MEFA Loan, families can borrow up to the cost of attendance minus any other financial aid they've received outside of the current MEFA Loan they're applying for.
So the cost of attendance can include tuition, fees, living expenses, books, supplies, any kind of miscellaneous expense. So once you have your bill and you're ready to apply, all applicants on the loan application can complete the application online at The application is quick and easy and should just take a few minutes to complete.
Applicant should receive a decision momentarily after all parties have submitted the requested information. However, if additional information is needed to reach the credit decision, MEFA will be in contact with the applicants. Assuming the loan application is approved, the primary borrower will need to log in to select the repayment option. And then all borrowers will need to log in individually to sign the MEFA Loan agreement, which is the promissory note.
So after that's complete, and all the documents are complete, MEFA will notify your college that the loan is ready for certification, and the college must certify the loan amount, and they cannot certify above cost of attendance minus other financial aid.
So if you have applied for an amount greater than that, the college will reduce the loan amount. The college will also select the date on which to send funds to the school. You can always contact your school's financial aid office to find out about your particular school's timing and their process.
Jonathan Hughes: Okay. So take me through this a little bit.
Now let's say I'm a parent and I have a student and we want to apply for a loan. We go onto And then do each one of us have to create a username and a password?
Meg Villavicencio: Yes, that's correct. Each person will need their own individual username and password to complete their section of the application. And then also to go back in and to sign the promissory note, the MEFA Loan agreement.
Jonathan Hughes: I think it's important to know too, how long would a customer have to wait in order to know if they were approved for a loan?
Meg Villavicencio: So, many customers would receive a credit decision momentarily after each part, after all the parties on the application have submitted the requested information.
However, there are times when MEFA might need, you know, to verify something or get a little more information. In that case, we would be in contact with the applicants. And once they provide the, you know, the additional information, a credit decision should be reached quickly, you know, within a matter of a day or two.
Jonathan Hughes: Okay, but otherwise it's momentarily, you said?
Meg Villavicencio: Right, correct.
Jonathan Hughes: Okay. So I guess that brings us to credit score. So this is where that becomes important. Can you explain, or Frank or whoever wants to take this question, explain, what a credit score is and the role that plays in getting a loan.
Frank Cavanaugh: Jonathan, credit score is a very challenging question for many people. A credit score is a calculated number based on information that’s on your credit report. And it's intended to summarize your ability to repay the loan. They use this to, it’s based on your prior borrowing behavior. And it's used by many lenders to make a decision.
A separate company, Fair Isaac Corporation, has created a score called the FICO score. I think most people have heard of a FICO score and most lenders use FICO scores. Where the confusion comes in is that each of the main credit agencies calculate their own FICO score. So borrowers can have many different FICO scores. But it's important to keep track of those FICO scores.
So when you're getting a loan, not only can your credit score determine if you qualify, it can also determine the interest rate you pay. So, it's very important to be aware of your credit score. Get all the details on your credit report to make sure that nothing's being pulled in and reported incorrectly that would impact your school.
Jonathan Hughes: Consumers are able to get a free credit report every year from And I think it's important to stress what you said, because it's not unusual at all that there is incorrect information or inaccurate information reported on a credit score, a credit bureau, I'm sorry, reported by a credit bureau on a credit report that would negatively impact your credit score.
So you want to know that, you want to pull that, and if there's anything incorrect, you need a few weeks for that to be removed. So I think it's a good thing to do at this point while we're still early in the process. I wonder if Meg, if you could tell me more about the MEFA Loan process since we have different loan products with different repayment terms and things like that, and different credit scores that need to be evidenced to be approved for some of those.
What is the process if you want a particular loan program?
Meg Villavicencio: Right. Good question. So with the MEFA application process, you go ahead and apply. So you put in all the requested information onto the application and then MEFA will let you know which repayment options and the interest rates that you've qualified for based on your credit.
So you don't need to, you know, say select, you know, I want to apply for a deferred loan upfront. The options that you qualify for will be presented that to you at the end.
Jonathan Hughes: How much time is enough time to apply for a loan and get your finances settled comfortably before you have to pay the college bill?
Meg Villavicencio: Right. Well, you know, that's a good question. And again, you know, many applicants receive an almost instant credit decision, you know, after all the parties have submitted their information. if additional information is needed from the borrower, it's kind of on the borrower's part to get the, you know, additional information requesting, to be in touch with MEFA.
But then, you know, you’ve got the electronic signature process, you can do the samE day and then the loan is sent to the school for certification. So it really is a quick process. everything can be done in one day, but of course, you know, then as the school certification, it's up to the school and how long that process takes.
But normally once the school sees that the loan is ready for certification on their side, that's fine.
Jonathan Hughes: fine. And when do we see most. Just for people who think even at this early stage that they may be behind if they don't have an application in, I mean, that's not the case where in April when recording this, it's not the case at all, that you're behind the curve if you haven't started applying yet. When do we see most people start applying for these loans for the upcoming year?
Meg Villavicencio: Yeah, you're correct. That it's definitely still early. We see most of the applications come in during the summer months. So, you know, towards the end of June, July, and then, you know, the beginning of August is a heavy application season.
Jonathan Hughes: If someone's not quite sure they want to go with MEFA, we should probably talk about comparing loans. I mean, there's a lot of loans out there. There are a lot of private loans out there. Obviously we hope that people have started by taking their federal direct loans first, and assuming that they have, and they still have a balance to finance, and they're going to be borrowing for that, you know, how can folks start comparing loans? Because there's, as I said, a lot of private loan lenders available, so, how can they begin to know what's the right loan for them?
Meg Villavicencio: Right. Good, good question. There are certainly a lot of loan options out there. If you decide to take an undergraduate or graduate loan, you should shop around for the right combination of interest rates and repayment options. You know, while a fixed interest rate, it charges the same interest rate and monthly payment for the life of the loan, a variable interest rate will likely increase its interest rate as rates in the economy rise.
So interest rates are definitely something to consider in fixed versus variable. And then another important loan option to consider is the repayment options. MEFA Loans have various repayment options. Deferred, interest only, immediate repayment.
So, you know, an immediate repayment loan typically has lower monthly payments than a deferred student loan and costs significantly less in the long run, but, you know, requires payments be made while in school. So, you know, as with any financial decision, you know, it's important to do your research and ask questions along the way to kind of decide which loan product is the best for your own financial situation.
Jonathan Hughes: Yeah, and I think it's important to mention too at this point, that we have a webinar that we're going to be putting on on June 1st, Comparing College Loans. And what are the important factors when you're looking at comparing college loans. And we'll put links in the show notes too for that so that folks can go on and register for it.
So, you know, let's assume that we know we're going to look at interest rates, we know we're going to look at repayment terms, and we know we're going to look at deferred versus immediate repayment. Where can people actually go to start looking at the various options?
Frank Cavanaugh: Sure. The first place they should go is the school financial aid office. As you mentioned before, you want to maximize your federal student loans. So they'll have information for you about those federal student loan options and how to get, learn more about them. You can go to to learn yourself. And that's really the first place to start.
If you need to look for a private student, you should also start with the student financial aid office. They'll have some ideas of where you can get started looking. But as Meg mentioned, you should shop around, look for different lenders. You can go on the internet.
You should look at banks, credit unions, and other student loan providers like MEFA. It's good to get many different quotes and you should also make sure that you don't just look at the information from the student financial aid office. You should look on your own as well. If you have a relationship, if your family has a relationship with a bank or a credit union, you may want to start there as well.
But the most important thing is to do your homework, to understand what your options are.
Jonathan Hughes: So another really common question, and I feel like this is one that we get all the time. Can students get their own loan or should students apply for a loan on their own without co-applicants?
Meg Villavicencio: This question does come up a lot.
Whether undergraduate students can get a loan on their own. And the answer is that most undergraduate students will need a co-borrower. This is because most undergraduate students don't have the credit history and income to qualify on their own. With the MEFA loan, the student borrower and all co-borrowers are equally responsible for the loan repayment.
Typically the parent or the other credit worthy individual is what we call the notice borrower, which means they will receive the billing statements and other notices. Although any party on the loan could make the payment. MEFA does have a loan option that's called the student deferred with co-borrower release that offers the co-borrower release option after the first 48 consecutive on-time payments, though other, you know, we have other loan options that may offer a lower interest rate.
And then finally there is the possibility of the student refinancing their loans down the road. Once they have established income and repayment history, this could also remove parent co-borrowers from the loan.
Jonathan Hughes: Next question is sort of a difficult one that, that comes up from time to time, but, you know, what options can we offer if mom or dad have had credit problems that may negatively impact their chances of being approved for a MEFA Loan? What options are available to them?
Frank Cavanaugh: If you're concerned about your parents' credit history, and if you've maxed out on your federal direct student loans, you can have your parents apply for a Parent PLUS Loan. The eligibility, the credit approval process for a Parent PLUS Loan is different from many private lenders. And it's an option for parents to take a look at. And if they are denied, the student may be available for additional funding on the federal direct loan.
And there's a couple more things to consider. The first one would be is this that you could see if you have a credit worthy person who, outside of your parents, may be willing to co-sign the loan for you. It may have a good credit history, so that's another option you can do.
And finally, you would want to try to consider many, not many, but a few different private lenders, because each lender has their own qualification. And you may qualify for a loan for one lender and not for another.
Jonathan Hughes: So if folks have questions about financing and using a MEFA Loan in particular, where can they go for that?
Frank Cavanaugh: Well, I think they certainly could call us, but if they have questions about MEFA Loans, they can visit And there's contact information there for any specific questions.
Jonathan Hughes: All right. Well, I think that should wrap it up for us. So thank you, Frank. Thank you, Meg. It's good to see you again. This is the most I've talked to either one of you in like two and a half years. So not quite two and a half, but two years. So, it was nice to see you. Nice to talk with you again and hopefully we'll get to see each other soon.
Meg Villavicencio: Thanks. Likewise. Thanks.
Well that about wraps it up for us today. Once again, thanks to Frank and thanks to Meg for sharing their time and their expertise with all of us today. And folks remember, if you liked the show today and you want to hear more from MEFA on all topics related to planning, saving, and think college and career readiness, please subscribe to us on Apple podcasts, Stitcher, iHeartRadio, wherever you get your shows from.
And whether you're a new or regular listener, please remember to rate and review us so we can keep doing what we're doing and getting this information in front of you. So, Julie, thank you very much for joining us again.
Julie Shields-Rutyna: I love being here. Thanks, Jonathan. Always fun
Jonathan Hughes: Thank you to our producer, Shaun Connolly, our editor Lauren Patten. And once again, my name is Jonathan Hughes and this has been the MEFA Podcast.

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