A significant number of Americans do not have a bank account, or even access to banking services. According to the Federal Deposit Insurance Corporation (FDIC), approximately seven percent of all American households were “unbanked” in 2015. This represents approximately nine million households. An additional 19.9 percent of all U.S. households (24.5 million) were underbanked, which means they have a checking or savings account, but obtained other financial services outside of the banking system. 

These numbers demonstrate just how many Americans are not involved in the traditional banking system. When it comes time to apply for college, this may create a dilemma: can you get federal or private student loans without a bank account?

The answer lies in how student loans are disbursed and how much money a borrower takes out for college.

Student Loan Disbursement Process

The good news is you do not need a bank account to obtain a student loan. As a general rule, neither federal nor private student loan applications require you to provide proof of a bank account in order to be eligible for a student loan. However, because private student loans, unlike federal student loans, are approved based on the borrower’s creditworthiness, the lack of a bank account may be a factor in the qualification process.

If you are approved for a federal or private student loan, the money is disbursed directly to your college or university. In other words, whatever money you borrowed to pay for your tuition, fees, and other expenses will be paid directly to your school by your lender. Because of this method of disbursement, borrowers do not need a bank account to get students loans.

However, there may be a hurdle for students who take out more money than is required for their tuition and other fees. This is commonly done by students who need the extra funds to pay for living expenses, books, and other costs associated with attending college (like buying a computer or plane tickets to travel home). Once the funds are disbursed to your college or university, the excess is typically electronically transferred to the borrower’s bank account by their school.

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For students without a bank account, this can present a problem. Without a bank account, they may not have access to those extra funds. Fortunately, there may be some options for borrowers in this situation.

How to Get Access to Student Loan Funds

If you don’t have a bank account to accept an electronic transfer, the first step may be to set up a bank account for this express purpose. Many banks allow clients to set up accounts with low initial deposits. In college towns, banks, and other businesses often run specials just for students.

Check to see if there are any deals on bank accounts for students that would allow you to open an account specifically for your transfer of excess student loan funds.

Alternatively, talk to your college or university about giving you a check for the excess funds. You could then use this check to open up a bank account. Other options may include cashing the check at a check cashing store (beware of high fees), or using the money to buy a reloadable debit card. 

While it may be more challenging to get a student loan without a bank account, particularly if you are taking out extra money to cover living expenses, it is possible. Don’t let your lack of participation in the financial system stop you from achieving your dreams!