Understanding Private Loans

If you're planning to borrow a private loan for college, you need to understand how they work. We provide some helpful guidance below. But remember, we strongly encourage you to fill out the FAFSA^® to borrow your Federal Direct Student Loans before considering private loans, as federal loans come with certain benefits not available through private loans. Learn more about the difference between federal and private loans. Once your family has borrowed the maximum permitted in Federal Direct Student Loans, you can turn to private loans for additional financing.

Lender

Private loans are offered by many different lenders, including banks and state authorities like MEFA. You can ask the financial aid office for options to consider, or use a loan comparison site like ELMSelect or Credible.

Amount to Borrow

You may borrow a private loan amount up to the amount of the school's annual Cost of Attendance (COA) (which includes tuition, fees, housing, food, books, supplies, transportation, and personal expenses) minus any financial aid you received. But only borrow what you need! Every dollar you borrow will need to be paid back with interest.

Borrower

There are private loan options for both student and parent borrowers, though most students applying for private loan funds will need a credit-worthy co-borrower to be approved. Keep in mind that anyone listed on the loan is responsible for repayment, whether that person is the primary or secondary borrower. Make sure your family has a plan in place for repayment before borrowing the loan.

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. Most colleges give families about a month between sending out the bill and requiring payment. Be sure to apply for any private loans 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 funds received between the two semesters.

Application Process

You'll submit your loan application through the lender's website and likely be told immediately if you're approved. The college will then certify your intended enrollment for the upcoming semester or year and ensure the amount applied for is equal to or less than the Cost of Attendance minus any financial aid received. If you are not approved, many lenders will offer the option to add an additional co-borrower with a stronger credit history to the loan for approval.

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. Interest will begin to accrue once the funds are disbursed. 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 on how 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. In addition, our Borrowing Tips for Private Student Loans provides helpful guidance as you navigate the college financing process.