What Can Student Loans Be Used For?
In 2017, Americans owed more than $1.3 trillion in student loans. With ballooning tuition rates, it’s likely that number will only increase in decades to come as students look for ways to pay for school.
But it’s not just tuition that students have to worry about. College comes with many expenses that students must cover, including: cost of living, textbooks and supplies, transportation, child care costs, extra curricular expenses, food, and other necessities. There are also a number of non-essentials that college students may find tempting to fund, like spring break trips, social expenses, and more.
This leaves many wondering how their financial aid money can and should be spent, especially since the burden of student loan debt can have far-reaching consequences. Many millennials report that their financial obligations have influenced them to delay purchasing a home. An additional 29 percent said they were postponing getting married, and 38 percent delayed having children.
Table of Contents
- 1 What You Can Spend Student Loan Money On
- 2 Things You Shouldn’t Use Student Loans For
- 3 Misusing Student Loan Money
- 4 Spending Student Loans Means More Student Loan Debt
What You Can Spend Student Loan Money On
Student loans are meant to be spent on necessities that will help you get through school. The key word here is necessity. Things like rent, utilities, groceries, and textbooks are things that you can’t live without when you’re attending college. Streaming movies, buying drinks at the bar, and planning spring break trips? Those probably aren’t expenses that you want to pay for with grants or student loans, even though you’re likely able to get away with it.
It’s important to remember that you only hurt yourself when you squander your student loan money on non-essentials. After all, the money isn’t free. Eventually, you’ll have to pay back the money you borrow, and it’ll come with interest.
Plan Before You Spend
Experts suggest that you start off your college experience with a realistic financial plan in place–one that involves taking out as few loans as possible.
“College can be one of the best times in your life–you don’t have to deprive yourself, but you do need to brace yourself,” Bakari Miller, a workplace banking coordinator at Regions Bank tells CNBC. “If they’re going to borrow money for non-essential purchases, at least know the ramifications and consequences…when students understand that, they make better decisions.”
Here are some necessities that you might consider spending your student loan money on.
The majority of students who take out student loans each semester do so in order to cover their school’s cost of tuition. The cost of this will depend on the institution you attend, your status as an in or out-of-state student, and the number of courses you are enrolled in.
Housing and Meal Plans
Student loans will also cover the cost of on-campus housing as well as meal plans. If you choose to live off campus, you may use your student loans to help cover the costs of living, which can include rent, utilities, food, and other living expenses.
Textbooks and School Supplies
Along with tuition, many students use their student loans to cover their textbooks, school supplies, and necessary technology, such as laptops or tablets. They do so for good reason. According to The College Board, the average undergraduate student spends $1,298 per year on textbooks. When you add the costs of technology, notebooks, and organizational materials, it’s not hard to see why students rely on student loan money to cover these costs.
Typically schools charge students a flat rate so they can access student services on campus, including extracurricular activities, clubs, athletics, health and counseling services, new technology, library resources, transportation, and other costs.
Students who live off campus may choose to use their student loans to help cover the expense of travel to and from campus. This can include gas and maintenance on their personal vehicles, or it can cover the cost of public transportation and ride sharing services. Those who choose to live on campus may choose to use their student loan funds to cover travel during school and breaks, including flights home, public transportation, and more. Students who live on campus who own their own vehicles can also use student loan funds to pay for parking passes on campus. If you plan on studying abroad, you can also use student loan funds to help cover the costs of travel.
For disabled students, the cost of attendance may include expenses for special services like personal assistance, transportation, equipment, and supplies. These expenses can be covered by student loans as well. Be sure to be aware of your rights and necessary ADA Accommodations that your school must provide for you.
Things You Shouldn’t Use Student Loans For
It’s important to remember that there are no federal agents keeping an eye on how you spend every dollar of your student loan money. When tipped off, the government can investigate and prosecute cases of outright student loan fraud.
“We can’t control how students spend,” said Felicia Bryant, director of financial aid at Camden County College tells USA Today. “We can guide them in the right direction, but ultimately if they qualify for funding, it is theirs to spend.”
Still, even without oversight, it’s important that you use your student loan money smartly. The amount of student loan money you borrow will affect your future finances. Be sure to research starting salaries in your chosen field, and be aware of how much money you’ll have to repay post-graduation.
While it may be tempting to spend your student loan money on non-essentials, there are a few things that you should avoid funding with your financial aid package.
While travel and transportation may an acceptable use of student loan money, it’s a stretch to assume that your financial aid package should cover vacations or non-essential trips. When it comes to your financial aid package, limit your travel-related expenses to those which get you to and from school.
Clothing and Impulse Purchases
Every college student knows what it’s like to run out of money in college, but that doesn’t mean that student loans should cover lifestyle expenditures like clothing, electronics, eating out or other non-essentials. According to a recent CNBC poll, 15 percent of students admitted to spending student loan funds on clothing, 13 percent of students used funds to eat at restaurants, and an additional 3 percent used their financial aid to purchase alcohol or drugs.
“When it comes to buying clothing and food, it’s important for students to buy only what they need in order to avoid taking out more loans — both student and credit card — and therefore accruing insurmountable levels of debt,” cautions Shelly-Ann Eweka, a financial advisor with the financial services firm TIAA quoted in the CNBC article.
When looking to make large purchases like a car or a home, it may be tempting to use your student loan money to fund your down payment. Many people look at loans as possible sources to fund their down payments, but it’s a dangerous way of thinking that eventually traps individuals into cycles of debt.
If this is a tempting offer, remember that patience will pay off in the long run. Taking extra time to save for a down payment on your own will save you from financial anguish in the future.
If your car happens to break down, or you have an emergency medical bill that you are unable to pay, it can be tempting to look to your student loan package as a solution to the problem. However, if you rely too heavily on your student loan funds, your borrowing has the potential to get out of hand. Remember, you’ll have to pay back that money eventually, so explore all other avenues before dipping into your financial aid disbursement.
Misusing Student Loan Money
As mentioned previously, it is highly unlikely that you’ll be penalized for misusing your student loan money. Since schools issue refunds directly to students, there are no real means of tracking how borrowers spend their excess money outside of tuition and fees. As a result, most colleges don’t actively look for misuse, and the Office of Inspector General in the United States Department of Education will only intervene when tipped off to instances of “fraud, waste, abuse, and other kinds of criminal activity.”
When instances of abuse and inappropriate spending are found, however, the school can report it to the Department of Education through their hotline and retroactively take back any misused funds. This means that students who misuse their student loan funds may be liable to their educational institution for those funds.
Spending Student Loans Means More Student Loan Debt
It’s also important to remember that misusing financial aid can have a negative impact on other students.
“Funding, such as state and institutional financial aid, may be limited and awarded on a first-come, first-served basis,” writes US News contributor Ryan Lane. “That type of system can’t factor in whether borrowers truly need the entire amount.”
“While one student feels comfortable about spending loan money on spring break or bitcoin, another could need those funds to cover a tuition gap,” he continues. If, for example the student with the tuition gap submitted his or her application later than the student who is spending irresponsibly, both students will struggle financially–one due to student loan debt, and the other because of a lack of funds for attending college.
In essence, it’s important to remember that student loan money isn’t free, and the misuse of funds can have lasting consequences not only for yourself, but for other students as well. Be smart, budget appropriately, and think carefully before you borrow.
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This post was updated November 21, 2018. It was originally published November 24, 2018.