Student Loan Certification: What Is It and How Does It Work?

by Ken O'Connor

Every year, students around the country complete student loan applications in order to pay for tuition and other related expenses for college.

Before a student loan can pay to a student's account, a process called certification must be completed.

Certification is basically a borrower protection put in place to make sure that correct loan amounts are being distributed to students. There are two different types of student loan certifications out there: self-certification and school certification.

Self-certification is a required part of any private student loan application in which the borrower must list cost of attendance and all other financial aid awarded to confirm eligibility for a loan. It is used to raise borrower awareness about financial aid and prevent borrowers from overborrowing. An applicant cannot borrow more than total cost of attendance minus any financial aid awarded. Here is an example of what a self-certification can look like:

School certification is a process completed at the school's financial aid office for all student loans, including federal and private. School certification confirms the borrower's eligibility for particular loans after reviewing the student's registration status, associated cost of attendance, and other financial aid eligibility. A loan request may be reduced or canceled depending on the registration status (full time, half time, less than half time, etc.) A school will certify different loans considering different data. Here are detailed examples:

As grade level is accounted for when awarding a Stafford loan, here is a list of maximum eligibility for each year of school, and lifetime eligibility. Note that as students advance in grade level, their federal loan eligibility increases:

When is certification completed? A self-certification for a private student loan is completed during the early stages of the application. A school certification is completed by the school's financial aid office after student loans are awarded and accepted by the student. A school certification may be completed very quickly, but it can take a long time for all loan certifications to be processed because of the high volume of students that apply for funding. Follow up with your school's financial aid office to get an estimate on when your loan will be certified.

• Subsidized Stafford loan certification: The financial aid office accounts for the student's expected family contribution (EFC) along with any other financial aid awarded to the student. Since subsidized Stafford loans are awarded based on financial need, a borrower would be ineligible for this loan if total combined financial aid and EFC are greater than the cost of attendance. Additionally, the grade level of the student also must be confirmed before the amount is finalized.

• Unsubsidized Stafford loan certification: The student's grade level is accounted for in this process. However, what is different is that the expected family contribution is not accounted for in the equation. This is because unsubsidized Stafford loans are awarded to students without considering financial need. If a student's expected family contribution is higher than the cost of attendance, the student would not be eligible for a subsidized Stafford loan. Students will be awarded unsubsidized Stafford loans up to the cost of attendance minus all other aid awarded, but cannot be awarded more than their annual limit each year.

• Private loan school certification: Private loans are certified in a similar manner to unsubsidized Stafford loans in that they do not account for the student's expected family contribution, and are not awarded to students on a need-based basis. Private loans are only provided to students after clearing a credit check and may need a co-signer to do so. The expected family contribution is not considered in the equation. The financial aid office is again responsible for certifying this type of loan, and will determine the maximum amount of loan money that can pay to the student's account, and the dates of disbursement.

Ken O'Connor is a financial aid expert and the director of student advocacy at cuStudentLoans.org. Learn more about credit union private student loans and college planning by visiting his blog.

Published July 16, 2012

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