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When you’re granted a student loan — either from the federal government or a private lender, your funds are disbursed directly to your school for use toward tuition, room and board, and other fees. Once those have been paid, you’ll receive the remaining balance to spend on additional educational expenses you might incur.
In some cases, this overage payment can be quite large. But as exciting as the extra cash may be, it’s important to spend it wisely. Remember: That money is borrowed, and you’ll need to repay it eventually — plus interest. With that in mind, let’s discuss what you should and shouldn’t use student loan funds for.
When student loans can be used
There are no hard and fast limits when it comes to spending your extra student loan funds. The best rule of thumb? If it’s something you need for school, your student loans can be used to pay for it.
Here’s a general list of private and federal student loan uses:
- Books: Most college courses require textbooks or reading materials. These qualify as educational expenses and can be paid for with student loan funds that are available.
- Supplies and equipment: Supplies can run the gamut, but it usually means anything you need for a class or your specific course of learning. This could be as simple as pens, paper, and Blue Books, or it could be costlier, like a laptop or computer program.
- Housing: This can mean your dorm room or, if you live off-campus, your rent, utilities, and other living expenses. Unless you’re living at home with mom and dad, housing generally counts as an educational cost.
- Food: You obviously need food to survive on campus, but be careful here. Don’t use your funds to cover dinners out and pizza orders for the dorm. Reserve your student loan funds for groceries or on-campus meal plans provided by your university. This will help you get the most for your money and keep you from taking on more debt to stay afloat.
- Transportation: If you need transportation to get to and from school — even just once or twice a semester, you can use student loan funds there, too. This might mean paying for your daily gas or toll charges, or it could be covering your monthly train or subway pass.
- Childcare: If you have a child, you’ll likely need to secure child care to attend school. If these care services come with a fee (i.e., it’s not your mom taking care of them), you can use student loans to cover them.
Keep in mind that education-related expenses will vary by student. A journalism student may need subscriptions to major newspapers for their reporting or editing class, while someone in culinary school may need an apron, knives, pots, pans, or other supplies. Your course of study and class choices will play a big role in determining what qualifies as an educational expense.
When student loans shouldn’t be used
When you take out a student loan, you agree to use the money toward your education. So bottom line? Student loans shouldn’t be used for non-educational purposes.
Here are a few examples of non-approved uses for student loan funds:
- Personal travel: Using your loans for a train ticket to and from school over Thanksgiving break is one thing, but the funds shouldn’t go to a spring break trip to the Bahamas or other personal travel. Unless the trip is for school purposes (meaning a field trip, in most cases), it will need to be paid out of pocket.
- Entertainment: Movies, concert tickets, sporting events, fiction novels — these are all fun activities, but most likely, none are required for your education or your course of study. One exception would be if your class required you to view and analyze a certain film or book. If this were the case, you would be able to use funds toward those supplies — but only the titles required for your class.
- Food or drinks out: Buying beer for your friend’s party or eating out every night at your favorite taco joint aren’t only non-educational, but they’re also downright wasteful uses of your cash. Your student loans should be used only for groceries or on-campus meal plans.
- Clothing: As much as you’d probably like a new wardrobe before that new semester hits, it’s hardly an educational expense. The one exception would be clothing required for a class or on-campus organization — like a lab coat or team jersey.
- Personal services: A haircut, a manicure, or a maid to clean your off-campus apartment might sound like a dream, but they don’t help further your education. Therefore, your loans shouldn’t be used to pay for them.
If you’re considering spending loan funds on something, take a step back and assess first. Is the purchase necessary for school? Does a class require it? Could you complete your course of study without it? If you’re unsure, then it’s probably something you’ll need to buy out of pocket (or avoid purchasing altogether).
What if I don’t have anything to spend my extra student loan funds on?
If you were sent an overage payment but have no remaining educational expenses to spend it on, your best course of action is to send it back to your loan servicer. You can either contact them directly or just send the money as a payment (however you would typically send it in).
It can be tough to give back money you just received, but the long-term benefits will be worth it. Putting these funds back toward your loan will:
- Reduce the long-term interest you’ll pay: By lowering your loan balance, you’ll reduce the total interest costs you’ll see over time.
- Help you build smart financial habits: Sending the money back is a good way to exercise financial caution. You’re learning to spend what you need — and not a penny more.
- Help your credit: Reducing your debts can directly improve your credit score. This can make it easier to qualify for another loan or financial product if you need one in the future.
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.
It’s never too early to start making smart financial decisions
How you use the extra funds from your student loans is ultimately in your hands. While you can technically use the money as you please, your choices will impact your future — and the financial options you have in life. Doing what you can to limit and pay down debt now can set the stage for a strong financial foundation after graduation.
Additional resources on student loan uses:
Author: Aly Yale