When it comes to spending your student loan money—after the basics are subtracted by your school—there’s a big difference between what you can do and what you can’t do.
Buy groceries? Absolutely.
A laptop? Sure, if the cost is within reason.
Spring break in Cancun? Hmm … no.
Of course it’s tempting to tap into the extra money and have a little fun. But there are two big problems with that strategy:
• Eventually, you’re going to have to pay all that money back. With interest. So the less student debt you accrue, the better off you’ll be.
• You probably signed a promissory note that outlined what you’re supposed to be spending your loan money on. Those restrictions may vary depending on what kind of loan you received—federal or private, subsidized or unsubsidized. Or maybe you have a mix. Doesn’t matter. Whatever those conditions are, you signed off on them. (And if the restrictions weren’t clear, it’s not a bad idea to ask: What can I use my student loan for?)
Student Loan Spending Rules
The federal code that applies to the misuse of student loan money is clear : Any person who “knowingly and willfully” misapplied funds could face a fine or imprisonment.
Your student loan refund—what’s left after your scholarships, grants, and loans are applied toward tuition, campus housing, fees, and other direct charges—isn’t money that’s meant to be spent willy-nilly. It’s meant for education-related expenses.
The amount of financial aid a student receives is based largely on each academic institution’s calculated “cost of attendance,” which may include factors like your financial need and your Expected Family Contribution (EFC).Your cost of attendance minus your EFC generally helps determine how much need-based aid you’re eligible for. Eligibility for non-need-based financial aid is determined by subtracting all of the aid you’ve already received from your cost of attendance.
What can you use a federal student loan for? Those costs are defined by the Higher Education Act of 1965 as including tuition and fees, books and supplies, transportation, dependent care and disability-related expenses, loan fees, and the cost of your first licensing/certification fees, as applicable.
Depending on your status (if you’re enrolled at least half-time), a federal student loan also could be used to cover some of your personal expenses, like a computer and room and board. And you might be eligible for costs associated with study abroad when approved for credit by your home school, as well as some costs for those who participate in cooperative education programs that combine work experience with academic studies.
Budgeting Your Student Loan Money
Your school is legally obligated to disburse any leftover money you’ve qualified for, with a few exceptions. And if you receive a refund from unused student loan money, you absolutely can keep it. Just don’t forget that it’s still part of a loan, not a gift.
According to the fine print on your promissory note , you can return the excess if you don’t think you’ll need it. You can cancel all or a part of your federal loan , but you would have to do it within 120 days of the date that the money was disbursed. If you need help or have questions about how to do it, you can always check with your school’s financial aid office and/or your loan servicer .
If you live off-campus, your school will estimate a reasonable amount to borrow to cover room and board, so you may want to keep that in mind when you’re deciding how much you’ll spend on an apartment, utilities, transportation, and food.
If you need a little budgeting help, there are plenty of apps available, including some that work especially well with a college student’s unique needs. Or if you’re a spreadsheet geek, you can always DIY it.
Just be clear—and honest with yourself—about the money you can expect to get from your parents, a job, student aid, etc. If you can be ready to dump a few discretionary expenses if you have a shortfall between what you’ll have coming in and what you’ll need to shell out every month and each semester, it can’t hurt.
It’s tough to finish college these days without some debt. The Federal Reserve’s Quarterly Report on Household Debt and Credit for the fourth quarter of 2018 shows that outstanding student loan debt increased to $1.46 trillion in the U.S., a rise of $15 billion for the quarter and $70 billion for the year.
Refinancing Your Student Loans
To help keep from getting into a hole after graduation, you may want to look into student loan refinancing. If you qualify for refinancing your student loans, you could potentially receive a lower interest rate or an extended loan term that could lower your monthly payments. And if you have multiple loans, refinancing can help make repayment more manageable, because you can roll them all into a single, new loan if you refinance with SoFi.
SoFi’s goal is to offer excellent customer service—and that’s just one of the perks.
If you lose your job and can’t make your payments, SoFi offers unemployment protection for eligible borrowers, and SoFi honors up to the first six months of any existing grace period on the student loans it refinances.
Student debt is only growing in the United States. Fortunately, SoFi is here to help.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.