While most financial aid offerings and student loans go through your college's student financial services office, there are certain types of student loans that go directly to your bank account. These are called direct-to-consumer student loans and are private loans that bypass your school, thus giving you more freedom to determine where the money should go.
Student Loans Overview
There are many financial aid options available to students who need help paying for college. According to Federal Student Aid, your loan is disbursed to the school at the beginning of each term. Your school will then apply the loan money to tuition, fees and room and board (if you're living on campus).
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Since many people choose to borrow more than just the base cost of attending school, any money left over is reimbursed to the student by the school. This reimbursement typically comes in the form of a refund check and is usually used for textbooks, supplies and other general cost-of-living expenses. If you realize you do not need the total amount loaned, you can cancel all or part of the loan within 120 days of receipt. No interest will be charged to the amount canceled.
When you take out a loan, your school will notify you in writing whenever they reimburse you for part of your loan money. You should also receive a notification from the loan servicer. If you don't receive one, it is important to follow up with one or both entities for more information.
Loan Proceeds Go Into Your Account
Student Loans result from a partnership between banks, student loan marketing companies and other businesses with student loan organizations. This is why they disburse directly to the consumer and not the school. However, these loans tend to be more expensive than loans referred to through your school. If you're looking for a student loan that goes straight to your account, shop around for direct-to-consumer private student loans, which are also referred to as DTC loans.
Keep in mind that it is much more common for student loans to be disbursed to your school first, and many private loans advertised as direct-to-consumer may be misleading. Always be sure to read the fine print.
If you choose to take out a direct-to-consumer student loan, it's a good idea to notify your school's financial services office first in order to avoid an over-award. An over-award can result in losing all financial assistance eligibility.
Refunds and Credit Balances
If you choose the more traditional financial aid option and select a student loan that disburses to your school first, any funds left over after paying tuition, room and board (and other expenses) will be disbursed to you by your school through a refund.
Your refund is yours to use as you wish, whether for rent (if you live off-campus) or textbooks; however, remember that this refund is still considered part of your loan and is factored into the amount you need to pay back.
The school must pay the student any excess amount – this is typically called a credit balance – within 14 days, unless the student authorizes the school to keep the money longer for future charges. If your school's policy is to issue textbook and supply vouchers to use at the bookstore instead of a credit balance for supplies, you can still opt-out of the program and receive a check instead.