What Can Student Loans Be Used For?

Student loans are designed to cover the cost of attendance at a college or university, including tuition, fees, books, room and board, and other necessary expenses. When you sign off on a federal or student loan, you agree to use the proceeds to cover these types of approved educational expenses. 

Loan funds are disbursed to your school first, and if money is left over after covering your expenses, you can collect the difference as an overage check. You might think of this as free money to spend how you wish, but you’ll need to repay it with interest, just like the rest of your loan. 

Can you use student loans for expenses other than education? We surveyed current and previous students to find out how they used their leftover loan funds. 

Approved federal student loan uses

The Department of Education approves federal student loans for specific uses, all of which are education-related. If you read the fine print on your promissory note, you’ll see this statement:

“I will use the loan money I receive only to pay for my authorized educational expenses for attendance at the school that determined I was eligible to receive the loan, and I will immediately repay any loan money that is not used for that purpose.”

When you sign this, you tell the federal government you’ll only use your loans for authorized expenses. In terms of what that includes, tuition and fees are obvious, but the Department of Education recognizes several other expenses as part of students’ cost of attendance. 

Your cost of attendance depends largely on which school you’re attending, whether you’re paying in-state or out-of-state tuition rates, your housing status (on- or off-campus), and your course of study. Acceptable uses for federal student loans include:

• Books, course materials, supplies, and equipment
• Housing and food (or living expenses)
• Transportation expenses
• Loan fees (for federal loans)
• Childcare or dependent care expenses
• Reasonable costs associated with study abroad programs
• Costs related to a disability
• Fees or other costs to obtain a professional license, certification, or designation

The Department of Education also includes “miscellaneous” costs as approved uses for student loans. A personal computer you use for school is an example of an acceptable miscellaneous expense. 

In our survey, 43.8% of students reported they used their loans for course materials, and 26.9% reported they used the funds for transportation expenses, aligning with federal guidelines. (See the full results of our survey below.)

Nowhere does the Department of Education state you can’t use leftover loan funds for other expenses. And it’s unlikely it will contact you for an accounting of how you’ve spent any overage. However, the loan is based on the assumption you’ll only use the money for educational expenses. 

Find out more about how student loans work.

Approved uses for private student loans

Private student loan lenders can establish their own policies for what they consider an acceptable or approved use of loan funds. However, it’s not uncommon for private lenders to follow the same guidelines as federal loans. 

For example, Ascent is a top lender that offers private student loans for college. When you accept a loan from Ascent, you’re acknowledging this statement:

Quote block: “Proceeds from Ascent’s college loans are intended for education-related expenses at an eligible college school not to exceed your school’s cost of attendance. These expenses, including tuition fees, room & board, and books, are sent directly to your school. We do not send any funds directly to students or cosigners.” –Ascent loan statement

Other private lenders can include similar language in their loan agreements or in their terms and conditions. However, some schools may allow more flexibility in categorizing acceptable expenses. 

We chatted with a College Ave representative who told us there is nothing specific the company won’t let you use your loans for. The rep noted schools can refund overage amounts to borrowers, which students can use to cover living expenses, and that it’s up to the school to determine what the loan will cover. 

Just like with federal loans, you must repay any overage amounts with interest. If you’re in doubt about what your lender allows you to use private loan proceeds for, it’s best to contact the lender. It can go over the terms of your loan with you to help you identify approved expenses. 

Survey insights: Real-world student loan uses

Now that we’ve covered what you’re supposed to use student loans for, let’s see what students are actually doing with their funds, based on our survey of former and current college students in the U.S.

Our survey asked 1,000 respondents to select their loan uses from a list, and we offered the option to write in their answers. Here’s what they reported:

• Course materials (e.g., textbooks and school supplies): 43.8%
•  Personal expenses (e.g., groceries, toiletries): 39.3%
• Transportation (e.g., car payments, public transit): 26.9%
• Medical expenses (e.g., health insurance, medications, medical bills): 19.8%
• Dining out (e.g., restaurants, takeout, delivery): 19.1%
• Housing expenses (e.g., utilities, furniture): 16.9%
• Electronic devices (e.g., laptop, tablet): 16.9%
• Savings or investments: 16.8%
• Fitness and well-being (e.g., gym membership, wellness apps): 12.8%
• Rent or mortgage: 12.6%
• Pay down a student loan: 11.7%
• Entertainment: 10.0%
• Child care or family-related expenses: 9.2%
• Returned funds to lender: 8.9%
• Gambling (e.g., sportsbook, casinos): 7.7%
• Vacation: 0.1%
• Credit card payment: 0.1%

When you can’t use student loans 

Assuming your education expenses and eligible costs of attendance have been paid, you might be sitting on a decent sum of extra cash. But before you spend any of it, remember: Your lender—whether federal or private—is not granting you free rein to use it for just anything. Intentional misuse of student loans could be considered fraud.

While you might be hard-pressed to find a list of banned or prohibited expenses, the general consensus says it’s unwise to use student loans for any of the following: 

• Travel expenses that are unrelated to getting back and forth to school, study abroad experiences, or mandatory school trips. (A field trip to an observatory? Yes. Our survey respondent who told us they used their student loan funds for a trip to Disneyland? No.)
• Entertainment expenses, such as concert tickets, movie tickets, or tickets to an amusement park—which 10% of our survey respondents reported they’d used their student loan refund to pay for. 
• Dining out or getting drinks with friends, as almost 20% of our survey respondents disclosed they’d done with their student loans. 
• Clothing that’s not required to attend school. 
• Personal services, such as hiring a maid or getting your nails done. 

Here’s one more item lenders generally frown upon: Using your student loans to pay off other debts. 

For example, say you get a $1,500 overage check from your private loans. You have a $1,500 credit card balance at 18% that you’re ready to wipe out. Using your loan overage to pay off the card might seem like a no-brainer since your loan has a lower interest rate. 

However, that’s not what you agreed to use the loan for when you accepted it. Besides that, you could get into financial trouble if you run up the balance on that card again. Now you’ll have to pay back the $1,500 overage on the loan and any new debt you create with the card. 

“If the loan funds are proven to be misused, a borrower could face an increased debt burden and interest expense if forced to repay, along with possible legal fees and a decrease in a borrower’s credit score,” says Andrew Steger, CFP. “One or a combination of any could make securing future loans for an automobile or home more difficult.”  

How will my lender or loan servicer know if I spend my loan funds on an unapproved expense?

A lender or loan servicer is likely unaware of how you use any overage loan funds unless you report it. Is it possible a lender could ask for a detailed accounting of where the money goes? Sure, but that’s not standard practice. 

But remember: If you’re using your loan funds for anything other than educational expenses—like our 7.7% of survey respondents who used their loan funds for gambling, for instance—you’re taking a risk. The lender could decide to cancel your loan agreement or refuse to grant you new loans. That could put you in a tight spot if you need funding to pay for college. 

If you receive an overage check, think carefully about how you plan to use it. Paying rent or buying groceries, for instance, is necessary to maintain a basic standard of living while you’re in school. But you don’t want to regret blowing your loan money on pizza and beer later when it’s time to pay it back. 

What if I have nothing to spend my extra student loan funds on?

If you get an overage payment and you don’t need it for any school-related expenses, you have  two choices. 

You can either:

• Send it back to your loan servicer (as 8.9% of our survey respondents told us they did)
• Hold onto it in case you need it for educational expenses for the next term

Sending the money back to your lender is a smart move if you don’t want to add to your debt repayment total. The loan servicer can apply the overage to your loan balance, leaving you with less to pay back later. That can reduce the total amount of interest you’ll have to pay over the life of the loan. 

Holding onto the money, meanwhile, could help if you have a shortfall when the next semester or academic year rolls around. If you plan to take this route, however, it’s best to park the money somewhere safe so you won’t be tempted to spend it. A money market account or high-yield savings account, for example, are both solid choices. 

If you’re not sure what to do with your payment, call up your servicer just to be safe. They can direct you where to send the funds.

Ask the expert

Andrew Steger

CFP®

Opting between keeping or sending it back will differ with each student. Financial aid offices should be able to produce full school year tuition expenses, and when paired with a budget, you can begin to make an informed decision that fits your situation. If you are financially prudent and disciplined, the overage could be saved in a money market for future use or future loan repayment.  By returning the overpayment, it will help to keep total debt levels low and in conjunction, reduce overall interest expense.  

It’s never too early to start making smart financial decisions

Unless your lender bars you from spending your loan money on certain expenses, how you use the extra funds is up to you. Using the money as you please likely won’t bring the student loan police down on your head, but it can affect your financial future. 

Leaving school with a smaller amount of loan debt in tow means less financial pressure, which is important when you’re just getting started in life. Building a solid foundation for budgeting, saving, and wise spending while you’re in college can benefit you for years. 

Additional resources on student loan uses:

• Student loans for past-due tuition
• Student loans for certificate programs
• Student loans for studying abroad
• Student loans for veterinary school
• Student loans for police academy
• Student loans for teachers
• Student loans for books and supplies
• Student loans for physical therapy school
• Student loans for culinary school
• Student loans for barber school
• Student loans for truck driving school
• Emergency student loans