How Private Student Loans Work

Many students turn to loans to help finance their education. While the college loan process might seem complicated and overwhelming at first, this article will help you understand how to take out a private student loans and how they work, step by step – from research to repayment.

What To Do Before Taking Out Private Student Loans

Before you apply for a private student loan, see if you can reduce the cost of your education through other forms of financial aid, such as grants, scholarships, and federal loans.

Unlike federal student loans that are issued by the government, private student loans are issued by private lenders, such as banks and financial companies.

In this article, we’ll focus specifically on how private student loans work. For more information on the difference between the two types, see our guide to Federal vs. Private Student Loans.

How Long It Takes to Get a Private Student Loan

How fast you can get a private student loan depends primarily on the lender. Most private student loan applications can be submitted online and take an average of fifteen minutes to complete. Approval times can vary, but most lenders will let you know if you’re approved within a matter of days.

At College Ave, we’ve simplified our private student loans application so you can get an instant decision in as little as three minutes.

How to Get a Private Student Loan: Step by Step

Step 1: Research Your Private Student Loan Options

Before applying for a private student loan, it’s important to do your research on the private student loan landscape and learn about your options. This is particularly important when it comes to interest rates and repayment terms, which can affect the amount of money you’ll owe over time.

Tip: For help in understanding what you should look for, check out “10 Things to Know When Shopping for Student Loans.”

Some private student loan lenders offer tools early in the process to help you make your decision. At College Ave, we provide a private student loan calculator that allows you to see how different loan repayment options will affect your monthly bills and total cost, and a pre-qualification tool to see what rates you can expect before applying.

Tip: If you’re not familiar with private student loans, start by reading up on topics like cosigners, variable interest rates, and in-school payments.

illustration of someone using the college ave mobile app

Step 2: Apply for a Private Student Loan

Once you’ve selected a lender, it’s time to fill out an application. The amount of information required varies, but private student loan applications typically request the following:

Contact Information

  • Mailing address
  • Email
  • Phone number

Personal Information

  • Date of birth
  • Social security number
  • Household income

School/Loan Information

  • School you’re attending and expected graduation date
  • Cost of attendance
  • Requested loan amount

Before formally submitting your private student loan application, you will receive a general disclosure document (Application and Solicitation Disclosure) with items like an interest rate range and sample repayment plans. This is a required form that includes other details like federal loan options and general student loan information.

Step 3: Get Approved

After reviewing the disclosure and submitting your application, the private student loan approval process begins.

How long does the private student loan application process take?

Some private lenders use a manual review process that could take a few days, while others produce an instant decision online. At College Ave, we provide an instant decision for all of our private student loans.

What happens during the private student loan approval process?

During the approval process, your private lender will evaluate your credit history, among other criteria, to determine if you’re a reliable candidate for a private student loan. This decision can produce one of three results:

  • Approved
  • Denied
  • Eligible with a creditworthy cosigner

If you’re denied, you’ll receive a letter in the mail with the specific reasons why your application was not approved. If you’re eligible with a creditworthy cosigner, it means you aren’t approved to take the private student loan out by yourself (which is common for students who often have limited credit history and income), but you can add an approved cosigner who has good credit and sufficient income. This individual will take equal responsibility for the private student loan with you. This can increase your chances of being approved and/or help you receive a lower interest rate.

If you are approved (congratulations!), it’s on to the next step.

Step 4: Accept and Sign Your Private Student Loan Terms

Once you’re approved, it’s time to review and accept the terms of your private student loan. Some lenders offer more flexibility than others when it comes to repayment. Your loan terms might also include a choice between a Step 5: Wait for School Certification

Once you’ve signed your loan documents, you’ve pretty much completed your responsibilities in the private student loan process. Your lender and school will take care of the rest – that is until your repayment begins.

During the certification stage, your lender will send your private student loan details to your school to confirm several things, including your enrollment status (half- or full-time), your anticipated graduation date, and your requested student loan amount.

Note that your private student loan amount cannot exceed the school’s calculated cost of attendance, once they factor in other loans or aid you’re receiving. Your school can then certify the student loan as is, with changes (amount, graduation date, etc.), or not at all.

If your school makes changes to the loan, your lender will often need to generate new disclosures to make sure you have the latest information. You may need to accept the new disclosure, so keep an eye out for communications.

How long does a private student loan certification process take?

The timing of certification is determined by your school and typically takes at least seven to 10 days. Sometimes it can take longer – especially if it’s a busy time of year when many students are applying for student loans.

Step 6: Understand Disbursement of Funds

Once your private student loan is certified by your school, it will be scheduled for disbursement. This means your school can get paid. When it comes to how private student loans work, understanding how student loans are disbursed is a common point of confusion for incoming students.

Private student loans are typically sent straight to your school; they are not sent directly to you (the student). In terms of how long it takes to get your student loan disbursed, your school sets that date, which is usually around the beginning of the semester. While this date is not dependent upon when you applied for your loan, it’s best not to wait too long to apply so that you can avoid any unexpected delays.

Your lender will most likely inform you directly when your private student loan has been disbursed to your school. If you applied for a loan to cover more than one term, often times the money is sent in two separate disbursements. For example, if you applied for a loan to cover both fall and spring, half of the loan money will be sent in the fall and the rest will be sent in the spring.

FINAL STEP: Repay Your Private Student Loan

Once your loan is disbursed and your tuition is paid, the next – and final – step is for you to repay your private student loan. When and how this takes place depends on your loan repayment terms.

In some cases, you can choose deferment, which means you are not required to make any payments until you graduate or are no longer enrolled in school. If you select a deferred plan, you’ll typically have a student loan grace period between the time you graduate (or leave school) and the time you enter your official repayment period.

When lenders offer in-school repayment plans (meaning you make monthly payments while you’re still in school), it’s an opportunity to reduce the overall cost of your private student loan. Sometimes this responsibility is as little as $25 per month but can make a big difference in the long run.

For more information on how you can reduce the cost of your private student loan, check out these tips.

Updated on 01/24/2024


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