Disbursement refers to distribution of money from a fund. When it comes to student loans, it’s how money gets sent to the school to pay for tuition and other education related expenses.
Understanding how student loans are disbursed is important to ensure your tuition, room and board, or rent will all be paid on time.
Let’s start by looking at how both federal and private loans are disbursed. Both types of student loans are sent in roughly the same way but there are some important differences. Then we’ll talk about potential roadblocks that could cause problems.
Disbursement of Federal and Private Student Loans
Student loans get sent directly to the school in scheduled disbursements on dates set by each school. Usually the dates correspond with the start of each semester, trimester or quarter, depending on the school’s academic calendar. They are then applied to the student’s account typically in this order:
- Tuition and fees
- Room and board (if applicable)
- Other institutional charges (if applicable)
If money remains, the school may issue a refund to the borrower to cover their remaining education expenses such as books, supplies, and living expenses.
How Refunds Work
Typically, schools refund any excess student loans in the form of checks, vouchers, debit cards, or as a direct transfer to the student’s bank. However, students may request the school retain the money for future payments or return it to the federal government or private lender.
Different Federal and Private Loan Disbursement Processes
There are some small differences in how each type of loan gets processed for disbursement. Knowing how each works can help students anticipate unforeseen issues.
Federal Loan Disbursement
Federal student loans come from the U.S government and are applied for through the FAFSA, the Free Application for Federal Student Aid. After received award letter, students must fill out additional forms notifying the U.S Department of Education if the loans are accepted or rejected.
Several weeks before the start of classes, schools will confirm the loan amount, the date of disbursement, and where it is being sent. If a notification is not received or it contains errors, reach out to the school directly for assistance.
Federal Student Loan Disbursement Requirements for New Borrowers
New borrowers of any federal loans and graduate students taking out Direct PLUS Loans for the first time have to complete a 20-30-minute, online entrance counseling before funds can be released. Students learn about managing expenses at school, loan terms, and the importance of minimizing debt.
Private Loan Disbursement
After finding a private lender, you apply, get approved, and agree to the loan, the school has to certify this private student loan before the loan can be disbursed. School certification is when the lender confirms enrollment status and the requested loan amount with school.
Certification usually takes about ten days but could take longer depending on the school. After the loan is certified and all other paperwork is signed, the lender sends notification and disburses the funds directly to the school.
Learn more about our private student loans.
Common Disbursement Issues
Now that you have a better understanding of how student loan disbursement works, here are some common issues that could slow things down.
- Applying for private loans or completing the FAFSA too late
- Forgetting to complete the loan agreement
- Making mistakes on loan applications or the FAFSA
- Missing the counseling required on certain federal loans
- Not enrolling in enough credits to qualify
If unsure about your loans’ disbursement, talk to the lender and your school’s financial aid office. The key to avoiding issues is communication, timeliness, and double-checking your work.
Learn more about funding college or grad school with student loans.