What Does Disbursement Mean on a Student Loan?

When pursuing higher education, many students must apply for student loans to offset the cost of tuition and educational expenses. Most lenders send loan money to the recipient a few weeks before the beginning of the term. The process the lender uses to transfer these funds is known as disbursement.

Lenders disburse student loans to different recipients depending on the type of loan. The government sends funds from federal student loans obtained through the Direct Loan program directly to the borrower's college or university. However, students typically receive the funds from private student loans and federal loans obtained through the Federal Family Education Loan program. If the student's parents obtain a PLUS loan, the parent will receive the funds.

Lenders typically disburse student loans based on the borrower's college or university schedule, and schools have differing policies with regard to student loan disbursement. Some schools prefer lenders to disburse funds several weeks before the first day of classes, while other schools won't accept disbursements until after the term has begun. Once the school receives loan funds, it will apply them to your tuition and other educational costs. If you or your parent receives the funds, you must remit payment to the school.

If the school receives your loan money, it will first apply the funds to the balance on your account. If surplus funds remain, the school may issue an overage check to you. Some schools require students to request overage checks, while other schools issue them automatically. If you receive your loan money, you can keep any funds that remain after you have paid your school bills. If your parent receives student loan money on your behalf, he can decide whether to transfer excess funds to you.

If excess funds remain in your school account and you don't request a refund, your school may apply the funds to your charges for the next term. If you withdraw from classes or attend school less than half time after receiving student loan money, your financial aid may decrease or terminate. In addition, if you attend school less than half time, you must begin making repayments on your student loans within six months.