Understanding Your Private Student Loan Documents

NOTICE: Under revisions to the Truth-in-Lending Act effective in February of 2010, you will receive significant additional disclosures about private loans, a 30-day period to comparison shop, and a right to cancel your loan. Watch this space for more information

Application Process

When applying for a private student loan, you will be asked for biographical information (name, address, social security number, etc.), information about your school enrollment, and financial information at some stage in the process. You should not be asked for any information regarding your gender or ethnicity.

Depending on whether you choose a loan marketed directly to you or through your school's financial aid office, the documentation requested about your enrollment will vary. For loans marketed directly to you, you will generally need to provide proof of enrollment at your school (a completed registration form, acceptance letter, or tuition bill, for example). For loans marketed by your school's financial aid office, the lender will obtain a certification from your school that you are enrolled at least half time for the academic period and that the loan amount does not exceed your school's cost of attendance, minus other financial aid.

Regardless of the channel through which you apply for your private loan, you will need to meet the lender's credit criteria and will likely need to provide information about your income and employment.

If you apply with a cosigner, the cosigner will need to meet the lender's credit, employment, and income criteria.

Promissory Note or Credit Agreement

If your private student loan application is approved, you will receive a promissory note or credit agreement, which contains the terms and conditions that will govern your loan through its life. Review this document very carefully before you sign it, because it contains information about deferments, interest rate calculations, fee calculations, interest capitalization, repayment rules, and other important terms.

The promissory note or credit agreement will likely also contain instructions about additional steps that are necessary for your loan to receive final approval. Review these steps carefully in order to avoid processing delays.

Truth-in-Lending Disclosure

After you return your signed promissory note or credit agreement along with any other requested information and your loan receives final approval, a disbursement date will be set. Either with or prior to the disbursement, you will receive a Truth-in-Lending Disclosure Statement ("TIL Disclosure"), required by federal law.

Your loan cannot be binding on you until after you receive the TIL Disclosure, and you typically will have a period of between 3 and 30 days after receiving your TIL Disclosure (check your promissory note or credit agreement) to cancel your loan. During this period, you have the absolute right to return your loan funds without obligation, accrued interest, or fees.

Starting in 2010, federal law will require the lender to send you a TIL Disclosure as soon as your loan is approved and give you three days to cancel after your loan is closed.

Regardless of when you receive it, you should review the TIL Disclosure's important financial terms of your loan, including the following:

Annual Percentage Rate -- The effective rate of interest for your loan per year. It takes into account interest at the rate in effect at the time the disclosure is given as well as any fees (other than fees that are contingent on future actions, such as late fees). It does not take into account fluctuations in a variable interest rate.

Finance Charge -- The cost of credit as a dollar amount. This is an estimate of the amount charged to you over the repayment period, in addition to the principal amount of your loan. It includes any charge payable by you and imposed by the lender as an incident to or a condition of the extension of credit, such as interest and origination fees.

Total of Payments -- The sum of the amount financed (loan amount) and the finance charge. In other words, this is the total amount you would pay to pay off the loan if you made every payment on time, made no early payments, and the interest rate was fixed.