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If a borrower ends up with more money in student loans than they actually need, they may receive a student loan refund check.
A student loan refund is money that a borrower receives when their loan amount exceeds the amount of money required to pay for qualifying education expenses. The excess amount would be sent to them as a student loan refund in the form of a check, or a direct deposit into their bank account.
Read on for more information on what a student loan refund is and what to do if you receive a student loan refund check.
Key Points
• A student loan refund may be issued if a borrower took out more in student loans than they actually needed to pay for college expenses like tuition and fees.
• The borrower might receive a student loan refund check in the mail or the refund may be directly deposited into their bank account.
• A college typically issues a student loan refund within 14 days, though it varies from school to school.
• In general, the school will contact the borrower to notify them that a refund will be sent to them.
• Students may opt to keep a student loan refund check, in which case the amount will need to be repaid with interest later, or they can return the refund to the lender.
What Is a Student Loan Refund?
A student loan refund is money that a borrower receives when their student loan amount is more than they need to cover their qualifying college expenses.
Student loan refunds may be given for federal and private student loans.
Federal vs Private Student Loan Refund
Both federal and private student loan funds are typically sent directly to a student’s school and applied to their school expenses, such as tuition and fees, room and board, and books and other education supplies.
In the case of federal student loans, any money left over is generally sent to the student as a student loan refund check or a direct deposit into their bank account.
For private student loans, the way refunds are handled typically varies by lender. Check with your lender to find out the rules regarding the student loan refund process.
For both federal and private student loans, any money a student is issued as a refund must eventually be paid back with interest.
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How to Get a Student Loan Refund
Each semester, colleges typically review student accounts to determine if there are any eligible balances that can be refunded to the student.
If a refund is owed, here are some details to know:
• How long college refund checks take varies from school to school. Schools will typically issue a refund within 14 days after determining that there is leftover money.
• In general, a college will contact the student in writing when they distribute loan money. Alongside this notice, borrowers will generally also receive information on how to cancel part or all of the student loans. If the borrower realizes they don’t need the full loan amount, this may be an option they want to pursue — canceling the amount they don’t need.
• Know that any amount refunded as a student loan refund is still considered part of the total amount borrowed. So, borrowers who receive a portion of their student loans refunded are still responsible for repaying that amount, with interest, if the refund is not canceled.
• When it comes to federal student loans, the borrower can typically cancel all or part of their loan within 120 days of receiving it. They will incur no interest during this time and no fees will be charged. The process of getting private student loan refunds varies depending on the lender.
• If the funds were received by the student to pay for qualified expenses, such as textbooks, the student can go ahead and use the refund for such purchases (more on this below).
Common Student Loan Refund Mistakes
There are a few common pitfalls regarding student loan refunds that borrowers should be aware of. These include:
Moving Too Slow
After a federal student loan is disbursed, a borrower has 120 days to cancel all or part of the loan funds without incurring interest or fees. This way they can avoid having the money refunded — and paying the interest and fees that may come with it.
However, if they miss the 120-day mark, they will be charged interest on the loan and they may be subject to fees. Interest on federal unsubsidized loans starts adding up on the day the loan is disbursed.
Not Establishing a Paper Trail
With a student loan refund, it’s typically a good idea to keep a paper trail of all communication in order to establish a clear history of events. That way, if anything goes awry, the paper trail can help serve as documentation of the refund.
Overrelying on Student Loans
Rather than relying solely on student loans that will need to be repaid, some borrowers may be able to find other ways to help pay for education expenses. Pursuing other forms of financial aid, such as work-study programs or scholarships and grants, may mean borrowing less, which could leave borrowers with fewer loan funds to repay.
Recommended: How Long It Takes to Get a Student Loan
What to Do With a Student Loan Refund
When a borrower receives a student loan refund, they have two main options. They can keep it or return it.
Keep the Student Loan Refund Check
The first option is to keep the refund. Borrowers aren’t required to submit proof of what they use a student loan refund for, so it’s up to each individual to spend it wisely. Just keep in mind that when a borrower signs a promissory note for a student loan, they agree to spend the funds on school-related expenses. While it may be tempting to use a refund for expenses that aren’t related to school, such as a trip for spring break or dinners out, paying for these things with loan funds could be a misuse of financial aid and may be considered fraud.
Instead, if you keep the money, you could use it to make a payment on your student loans or apply it toward expenses for next semester.
Return the Student Loan Refund Check
Returning the refund check may be the most beneficial choice in the long run. Otherwise, the money will have to be paid back, making your total loan balance higher overall. Also, you may be charged interest on the funds, which could increase your total interest charges over the life of the loan.
For details on returning your student loan refund check, contact your school’s financial aid office.
Refinancing Student Loans
As borrowers begin to think about how they want to manage and pay off their student loan debt, one option they may want to explore is student loan refinancing.
When student loans are refinanced, a borrower replaces their current loans with a new private loan, ideally with a lower interest rate and/or more favorable terms. A borrower might also choose a lower monthly payment for a longer loan term.
Keep in mind that if you refinance with an extended term, you may pay more interest over the life of the loan. Also, know that if you refinance federal loans, you will forfeit federal benefits such as forgiveness and student loan deferment. For these reasons, refinancing may not be the right choice for all borrowers.
The Takeaway
If there are funds from student loans left over after all tuition and fees are paid, borrowers may receive a student loan refund check. This check can be used to pay for other educational expenses, or it can be returned.
Just remember that unless the refund is returned, the money will need to be repaid with interest.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
Why did I receive a student loan refund check?
If you received a student loan refund check, it’s likely that the amount you borrowed in student loan funds exceeded the expenses your college billed you for, including tuition and fees. In that case, the refund check is probably for the excess amount. You can contact your school’s financial aid office to find out exactly why you received the refund.
When should I expect my student loan refund check?
Typically, borrowers will get a student loan refund within 14 days after the financial aid office at their school has applied the loan funds to their qualified education expenses and processed the credited amount. A check that’s mailed will likely take longer to receive than a refund that’s directly deposited in the borrower’s bank account.
How do I know if I got a student loan refund?
Your school should notify you that you are getting a student loan refund. You can also check your account on your school’s online portal — information about a refund should be listed there. Finally, you can contact your school’s financial aid office directly and ask them whether you are getting a refund.
Can I spend my federal student loan refund check on anything?
Student loan funds are meant to be spent on qualifying education expenses, such as tuition and fees and room and board. Using your student loan refund check to pay for nonessential education expenses may be a misuse of your financial aid and might be considered fraud.
What happens if I don’t return my student loan refund?
If you don’t return your student loan refund, you could use the money to make a payment on your student loans or even apply it to next semester’s expenses if possible. Just remember that a student loan refund is money that needs to be repaid with interest, so keeping it may add to your student loan debt.
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