The money from a student loan is – generally speaking – only sent to one of three places: your school, your own mailbox, or that of your parents.
Federal loans are sent to your school directly, which then disburses it as needed. For loans like Perkins or Stafford, the United States Department of Education works with the school directly to determine tuition and sometimes boarding and supplies costs.
Then the funds are co-paid in both the student’s name and the school's name, so it can be correctly applied to the student’s account. Anything that’s left over is put into the student’s account for future use or repayment.
The school will then pay you directly for the amount (by check) or simply apply your loan money to your tuition or other school-related charges.
In almost all instances, the loan is disbursed in at least two payments during the academic year.
Sometimes the school itself also has funds it uses to provide financial aid to students specifically for their programs. The institution can combine federal funds with some of its own to help pay costs of qualifying students.
It's helpful to note that sometimes if you’re a first-time borrower and an undergraduate in your first year, your school might not be able to disburse your first payment until 30 days after the first day of your enrollment. The reason is you won’t have to repay the loan if for some reason you do not begin classes, classes are canceled or you withdraw during these first 30 days.
Private loans can be sent directly to the school too, but when there is a balance left over, a borrower can usually request a check be made out directly to them. Of course, the borrower still has to pay back the same loan amount whether there is money left over or not.
Often, a private lender will send a lump sum directly to the borrower – or the borrower's parents – at their permanent mailing address.
You have probably heard about people taking their student loan money to go on trips, max out their credit cards or otherwise use for non-school related purposes.
Lenders vary in the flexibility of what school related can mean, and what they will accept as proof of this.
However, educational loans are awarded to people based on need, so it remains up to the integrity of the lender of whether you would actually receive enough to have a lot left over after school expenses or not.
Acceptable proof of enrollment is usually required before final loan approval, and can include a tuition bill from the school or an acceptance letter that shows enrollment. For the same purposes of designating need, proof of income such as check stubs and taxes returns might be required.
And again, you are still responsible for the loan repayment and interest fees whether you use all the money or not. A smart person will give the school written permission to hold any extra funds until later in the academic period.