Distribution of Federal Loans

How Do I Get My Loan Money?

Getting all your student loans lined up can be a long and stressful process. You have to fill out FAFSA and wait for the government to send your Student Aid Report, which lets you know what your Estimated Family Contribution is going to be. Then you have to wait for the colleges you have applied to to send you their award letters, letting you know the types and amounts of the loans you can take out, as well as any other grants or scholarships you have been awarded. At that point, you have to figure out if there is a budget shortfall, and if so, how much is it. Then you find and apply for a private student loan to make up this difference. Once you know the amount of all your loans and you have all your promissory notes, the obvious question is, “How do I get this money?”

Distribution of Federal Student Loans

It is clear upfront how a private student loan is disbursed, but it is not so clear how Federal aid gets to you.

Although your Federal student loan will go towards paying for your education, you may not actually see any of the money. The money for your Federal loan, and all your Federal financial aid, is sent from the United States Treasury to the Department of Education (DOE), and the DOE sends the funds to the school you are going to attend.  Your school applies the loan and other awards to tuition, fees, room, board and any other charges you have to pay the school.  If there is any money left over, your school gives it to you in a check.

This method is intended to prevent fraud, so that students who are not in school do not receive Federal student funds. It also ensures that students use their Federal money on educational basics, rather than on enhancing their student lifestyle. The funds are disbursed to your school in semester or quarterly installments, depending which schedule your school follows.

Even if there is money left over once your school deducts tuition and fees, legally you are required to use the Federal aid only to pay for additional expenses that directly related to making your education possible, such as books, supplies, childcare, computer equipment and transportation. If you are like most students who need to take out Federal student loans, i.e. pinching pennies to make their education happen, this requirement should not be an issue.