How a private student loan works

Know every step of the private student loan process

What can you do if you’ve added up your college scholarshipsfederal student loans, and your savings—and you still need money to pay for your upcoming semester? Your next step may be to get a private student loan.

Here’s an overview of how private student loans work, from when you apply to how the money actually gets to your school.

Two decisions before you apply for a student loan

1. How do you choose a student loan?

Private student loans are offered by banks, credit unions, and other financial companies. There are a lot of loans out there, but don’t get overwhelmed.

  • Your college’s financial aid office may be able to give you a list of lenders.
  • You can check with your local bank/credit union.
  • You can ask friends and family about who they’ve used for private student loans.

Once you have some options, go online and compare what each lender has to offer. A spreadsheet can help you keep track of different loan features. Here are some things to note:

  • Is there a choice of repayment options (i.e., making payments while you’re in school vs waiting until you leave school)?
  • What are the interest rates and APRs offered with the loan?
  • Are there benefits that can lower your loan’s cost?
  • Is there a loan for your specific needs (undergraduate or graduate student)?
  • Are there any fees or extra expenses?

Need money for college?

Consider a Sallie Mae® private student loan

  • Available for online or on-campus study
  • Competitive fixed and variable rates
  • No origination fee or prepayment penaltyfootnote 1
  • 95% of undergraduate students who’ve been approved were approved again when they returned with a cosigner the following yearfootnote 2
Photo webImage blog Cross Sell study Girl.

2. Do you need a cosigner?

Private student loans are credit-based, which means the lender will check your credit rating and other info. If you’re just entering college, you may not have much credit history, so you may need a creditworthy cosigner.

  • A cosigner shares responsibility with you for paying back the loan.
  • They can be a parent, relative, guardian, or any adult who has good credit.
  • If you’re a grad student or you’ve been working for a few years and paying your bills on time, your credit may be strong enough that you don’t need a cosigner.

Pro tip:

Taking out a student loan, even with a cosigner, and making on-time payments can help you build your own credit history.

Next steps: After you’ve decided on a private student loan

1.  Applying for a student loan

To make the application process as smooth—and stress-free—as possible, have this info ready before you start:

  • Personal info—like your date of birth, address, and Social Security number
  • School info—where and when you’re attending school, and the degree you’re considering
  • Financial information, like your bank account
  • Employment information and income (if you’re working)
  • How much money you want to borrow

If you have a cosigner, they’ll have to fill out information, too—either at the same time as you or later—before the lender can decide whether you’re approved for the loan.

Pro tip:

Get some help on figuring out how much money you should borrow.

2.  Getting approved for credit

A lender wants to make sure you’ll be able to pay back your loan after you borrow the money. That’s why they consider whether you and/or your cosigner are “creditworthy.” The lender will evaluate your credit history to see how you’ve handled your finances in the past.

That’s why the first step a lender will take after you submit your application is to see if your (and your cosigner’s) credit history meets their guidelines.

  • Every lender has specific criteria that they look for—this can include a particular credit score range, outstanding debts, income, and more.
  • When you (and your cosigner, if you have one) pass the credit review, you’ll be notified that you’re approved. It can take as few as 15 minutes to find out whether you’ve met their credit requirements. If the lender needs more information, the approval can take a few business days.

3.  Choosing your loan options

Now that you’re credit-approved, you may need to make some choices—like whether you want to make payments during school or defer them, and whether you’d prefer a fixed or variable interest rate.

It’ll be easier (and faster) if you read up on your choices beforehand; they should be described on the lender’s website.

The lender may ask you and your cosigner (if you have one) to accept the loan terms for your loan by phone or online. Make sure that you understand what you’re accepting—this is a legal document. If you have questions, ask the lender or someone you trust who has more financial knowledge.

4.  Your school certifies your loan

The next step for your loan application may be getting it certified by your school. That means your college confirms that you’re enrolled and that you’re not asking for more than the cost of attendance (like money you want for a vacation). This will typically happen automatically between your school and the lender…there’s nothing for you to do.

  • How quickly the money is disbursed (sent to the school) depends on several factors, including when the school is notified by the lender and after that, how long it takes your school to process the certification.
  • After your loan is certified, the lender will give you a Final Disclosure. This lists your loan’s specifics: interest rate, number of payments, fees, and other important info. Hang on to it. You may need the info later.

5.  The money is disbursed (sent) to your school

After your school certifies your student loan, and after your right-to-cancel period expires, your lender and your school may work together to set the dates that funds will be disbursed (sent) to your school.

Interest begins to accrue (grow) on a loan as soon as the funds are disbursed. So, if your loan covers several semesters, your lender may disburse only the money needed for that semester. This can reduce the amount of interest that you’ll have.

  • After your school gets the funds, they’ll take what they need for tuition and room/board.
  • The remaining funds may be sent to you or handled some other way by the school—check with your school about its policy.

Pro tip:

If you do get a refund, remember it’s still borrowed money that you’ll eventually have to pay back—plus interest! If you don’t need it for college expenses, return the extra money to your lender to help lower your total loan cost.

If you have questions about your loan…

If you have questions about applying for a student loan or any of the terms in your loan, ask your college’s financial aid office or call your loan provider for help.


footnote Borrow responsibly
We encourage students and families to start with savings, grants, scholarships, and federal student loans to pay for college. Students and families should evaluate all anticipated monthly loan payments, and how much the student expects to earn in the future, before considering a private student loan.

footnote 1. Although we do not charge you a penalty or fee if you prepay your loan, any prepayment will be applied as provided in your promissory note: first to Unpaid Fees and costs, then to Unpaid Interest, and then to Current Principal.

footnote 2. Sallie Mae loans cover enrollment periods of up to 12 months. Students must apply for a new loan each school year. This approval percentage is based on students who were approved for a Sallie Mae undergraduate loan with a cosigner in the 2021/22 school year and were approved for another Sallie Mae undergraduate loan when they returned with the same or new cosigner in 2022/23. It does not include the denied applications of students who were ultimately approved in 2022/23.

footnote Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Consult your own financial advisor, tax advisor, or attorney about your specific circumstances.

footnote External links and third-party references are provided for informational purposes only. Sallie Mae cannot guarantee the accuracy of the information provided by any third parties and assumes no responsibility for any errors or omissions contained therein. Any copyrights, trademarks, and/or service marks used in these materials are the property of their respective owners.

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