Generally speaking, a federally subsidized or unsubsidized loan or private loan can be sent directly to the student, or sent to the student's school to be put in their account.
Federal student loans have two distribution channels, both of which can cut a check directly to the borrower or the school. The channels have two names, and are funded differently: Federal Direct Student Loans (otherwise called Direct Loans, or FDLP) and Federal Family Education Loans (FFELP).
- A FDLP originates at the United States Treasury Department. The money is then sent through the United States Department of Education, then to the college or university or to the student.
- A FFELP loan is funded with private capital by institutions such as banks, credit unions and savings and loans. These are more similar to consumer loans in that a borrower can take advantage of payment options that could reduce their overall repayment amount, like a discount for using automatic debiting or consecutive, on time payments.
Will I Ever Receive Money Directly From The Student Loan Lender?
Again, these monies are sent to the school directly and disbursed to the student to pay for school related only costs, or put directly into the student’s account and pulled out directly when bills come due, or the funds are sent in a lump yearly/twice-yearly check to the student.
Private loans are almost always sent directly to the school. They can vary in the number of installments, but essentially they are put into your student account. The only time a lender might deviate from this process is if your school is not set up for electronic transfer of funds, or for some reason will not accept it from your lender. In this case, the lender will send a check directly to the borrower to be endorsed over to the school, or more likely, made out to both the student and the school. The borrowing student is then responsible for getting the funds to the school.
For both federal and private loans, any monies that are left over after tuition, textbooks, computers, housing and living expenses related to school will be sent to the borrower in the form of a check.
Borrower's loans can vary as much as their financial needs. Generally, if a student needs money just for tuition and not room and board or anything else, it’s best to get a loan that puts the money directly into a student account or pays the school. When a borrower needs to cover not just tuition, but rent, food, gas – anything that could be construed as school-related – loans that put the money directly in his or her hands might make it easier to pay more fluctuating costs like rent.