There are two types of Private loans. They are :
- school-channel
School-channel loans offer borrowers lower interest rates but generally take longer to process. School-channel loans are ‘certified’ by the school, which means the school signs off on the borrowing amount, and the funds for school-channel loans are disbursed directly to the school.
- direct-to-consumer.
Direct-to-consumer private loans are not certified by the school; schools don’t interact with a direct-to-consumer private loan at all. The student simply supplies enrollment verification to the lender, and the loan proceeds are disbursed directly to the student.
While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly — in some cases, in a matter of days.
Some argue that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes, since there is no third-party certification that the amount of the loan is appropriate for the education finance needs of the student in question.
Direct-to-consumer private loans are the fastest growing segment of education finance and under legislative scrutiny due to the lack of school certification.