Financial Aid FAQs

You’re not the only one with questions about financial aid and private student loans. Here are answers to frequently asked questions that can help you make an informed decision.

What is a Private Student Loan?

A loan funded by a private lender to help pay for your education. This is a non-federal loan made by a lender such as a bank, credit union, state agency or school.

Does my school need to be involved in the Financial Aid and Private Student Loan process?

Yes. The school will need to have an agreement with the lender. The school will be asked to certify the requested loan amount and to advise the lender when to send the funds to them.

Will I need a co-signer? Who can co-sign for me?

You may be asked to have a co-signer. Depending on the strength of your application, a co-signer may assist you in getting the loan approved and may also help lower your interest rate.

Anyone who is a US citizen or permanent resident, has attained the age of majority and is creditworthy may apply as your co-signer.

May I receive the funds directly?

Most private loans require the school to receive the funds. If you request an amount that is greater than the debt due the school, the school will release the excess amount to the student. Please allow the school some processing time prior to them releasing the funds.

How do I repay the loan?

Federal Student Loans have a grace period (the six month period before repayment begins) which starts immediately upon: graduation, withdrawal from school or dropping below half-time status.

Some private student loans have multiple repayment options. Examples are:

  • Deferred repayment which typically requires no minimum payment of principle or interest while in school.
  • Fixed repayment is a set monthly payment amount while attending school. This option may help pay down the interest that is accruing on your loan. It could also help build a good credit history with on-time regular payments.
  • Interest repayment is generally equal to the accrued interest each month. This type of option may help avoid interest capitalization at the time repayment of the full loan starts. It could also help build a good credit history with on-time regular payments.
What is included in the Cost of Attendance (COA)?

The Cost of Attendance is the total amount that it will cost you to go to school. This is usually stated as a yearly amount. The COA includes tuition and fees; room and board (or housing and food allowance); and allowances for books, supplies, transportation, loan fees and dependent care. It may also include additional items. Check with your financial aid office at your school to seek what your specific COA amount is.

What is Capitalized Interest?

Capitalized interest is the unpaid accrued interest that is added to your outstanding principal balance of the loan. Interest may be capitalized at the end of the 6 months after graduation. A fixed repayment option can help reduce the amount of accrued interest that will capitalize when the loan goes into principal and interest repayment. An interest repayment option could eliminate interest capitalization.

What is the difference between a fixed and variable rate?
  • A fixed interest rate will remain constant throughout the life of the loan.
  • A variable interest rate may have the potential to change. Some variable rates are tied to an index such as the LIBOR rate. Because the index may change, this rate is considered a variable rate.
  • Typically, once an interest rate and repayment plan are decided and the loan has been disbursed, these decisions are locked in for the life of the loan. Please make sure you completely understand all of the terms of the loan.
Can my co-signer ever be released from the loan?

Some private student loans do offer this as a benefit. After graduation a borrower can apply for their co-signer to be released from the loan once they have met certain requirements such as the ability to assume full responsibility of the loan and have demonstrated a satisfactory credit history.

What are origination fees?
  • Origination fee (also called loan fee) is an expense of borrowing a loan. The loan fee is a percentage of the amount of the loan.
  • Typically there are no origination fees for private student loans if you are attending a degree-granting institution.
What other benefits should I know about?
  • Some programs offer an interest rate reduction if you enroll to make scheduled payments by automatic debit from a checking or savings account.
  • Typically you can prepay without penalty.

We at Commerce Bank encourage students and families to supplement their savings by exploring grants, scholarships, federal and state student loans and to consider the anticipated monthly payments on their total student loan debt and their expected future earnings before considering a private education loan.

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