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The Loan Process
With a complex maze of players from lenders to servicers and multiple steps from completing the FAFSA to signing a Master Promissory Note (MPN) - understanding the Federal student loan process is no easy task!
Below is an overview to help guide you about the parties involved, what you are responsible for and what goes on behind the scenes when you apply for a Federal student loan.
The Players
It may not seem like it on the surface, but there are actually many different players involved in getting a Federal student loan:
- You - the borrower
- School - the college for which you borrow the loan
- Lender - the institution that provides the money for your loan (example: Student Lending Works)
- Guarantor - the agency designated by the Federal government to guarantee education loans for lenders and monitor their handling of such loans. (example: Great Lakes Higher Education Corporation)
- Servicer - the third party organization that administers bills and collects loan payments on behalf of lenders. (example: Great Lakes Educational Loan Services, Inc.)
Application Procedures
Here are the steps to apply for and receive a Federal student loan:
- You complete the Free Application for Federal Student Aid (FAFSA) to apply for financial aid of all types, including Federal student loans.
- You and your School receive your Expected Family Contribution (EFC). Based on your EFC, your School prepares a financial aid package for you that includes information about the Federal student loans you are eligible for.
- You complete a loan application called a Master Promissory Note (MPN) for each type of student loan you want to borrow.
- Your School will send a certification to the Lender/Servicer confirming that you are indeed a student (or the parent of a student in the case of a Parent PLUS loan) attending their college and that you are eligible for the loan.
- The Guarantor reviews the certified loan and guarantees it, which means to insure the loan against default.
- The Lender sends the loan money to your School and your School applies the loan money to your account.
Getting the Loan Money
Once all parties have completed the necessary components to apply for, certify, and guarantee the loan, then you will receive your loan funds.
Where does the loan money go?
Federal student loan money is not sent to you directly; it goes to your school. Your school will apply the loan money to your account. If the loan money covers more than what is owed on your account for tuition, room, board and other school fees, then any remaining money will be given to you to cover other school expenses such as books and supplies. Each school has its own unique process for handling student loan refunds. You should contact your school if you have questions about a student loan refund.
When do I get the money?
When your school provides certification for your loan to the Lender/Servicer they will also indicate when the loan money should be sent to the school. Most schools will request to receive the money in installments over semesters or quarters called disbursements. You can check with your school to determine when they will apply the loan money to your account and when they will send any remaining funds to you.
Your Responsibilities
To review, when applying for a Federal student loan you as the borrower must :
Then the School, Lender, Guarantor and Servicer will take care of their portions to complete the loan. After the loan is complete and you receive your loan money, you have the following responsibilities:
- Maintain Satisfactory Academic Progress (SAP)
By Federal law, schools must establish standards of satisfactory academic progress, such as requiring students to keep a minimum grade point average and complete coursework in a timely manner. To keep getting loan money, students must make sure they are meeting their school's requirements for satisfactory academic progress.
Even if students don't finish their education, aren't satisfied with the education they received or don't get a job, student loans must be repaid. Keep in mind, you have borrower rights and Student Lending Works can help you with flexible repayment options.
- You must promptly notify your lender if any of the following events occur before your loan is repaid:
- You change your address, your telephone number, or your e-mail address
- You change your name (example: maiden to married name)
- You withdraw from school or drop to less than half time status
- You transfer from one school to another school
- You change your employer or your employer's address or telephone number changes
- You have any other change in employment status that would affect your loan
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