The short answer is yes, you can use student loans for living expenses. Student loans aren’t meant to cover only tuition and textbooks. They are intended to make it easier for students to get the basic necessities so they can focus on their education instead of worrying about how they’re going to pay for college.
Flickr user York College of PA
However, there is a caveat. Student loans can’t be used for any and all living expenses. You can only use student loans for ‘authorized’ expenses, which include expenses other than tuition that are directly related to college.
Here’s what you should know about using student loans for living expenses.
How Student Loans Are Disbursed
After your loan application is approved, the lender processes the funds and sends the money to your college. The college deducts your tuition and any other related fees such as dorm fees if you’re living on campus.
Any funds left over after paying off these expenses are transferred by direct deposit into a bank account that you’ve registered with your school’s financial office. The exact amount that’s transferred to your account will vary depending on your cost of tuition and the total loan amount you receive. Then you can decide how to use these funds for other authorized expenses.
Student loan terms don’t define exactly what you can and should use your loans for although the Federal Student Aid office does state that student loan funds should be used for “authorized educational expenses” only.
Authorized educational expenses typically include:
- room and board
- books
- transportation
- school supplies
- laptops or desktop computers
- and miscellaneous personal expenses.
If you’re taking a specialized class such as photography, you can use the funds to buy photography-related equipment. Study abroad and co-op study expenses are also covered under authorized expenses and are licensing or certification costs.
What You CAN’T Use Your Student Loans For
There’s no official list of what you cannot use student loans for. However, it’s generally understood that you cannot use student loans for anything unrelated to your education.
These are some things you cannot use your student loans for:
- Personal travel – While you can use the funds to buy a train pass for traveling to and from your classes, you cannot use it for buying air tickets for a quick weekend getaway or spring break.
- Personal care – You cannot use the funds to pay for salon or spa services, gym or club memberships, and other such expenses. You’ll have to pay from your own pocket to use these facilities.
- Entertainment – Whether your favorite pastime is attending live concerts or live baseball games, you cannot use loan funds to buy the tickets.
- Dining out – Food is an authorized expense, which means you can use student loans to pay for food and even groceries, but there are limits. Meals at fine dining restaurants don’t qualify as authorized.
- To pay off other debts – Student loans generally have low interest rates. Using the funds to pay off debt such as credit card debt can be tempting but it’s not allowed.
When in doubt about whether an expense qualifies as authorized, ask your school’s financial aid department or your student loan servicer to clarify.
What Happens If You Use Student Loans for Non-Education Expenses?
Using student loans for non-education expenses could lead to legal problems. Before your student loan funds are disbursed, the lender will send you a promissory note. This note outlines the terms of your agreement. Along with other terms and conditions, it lists what you are allowed to use your funds for. The lender will release your funds only after you sign this promissory note, which means you’ve read, understood, and agree to the terms of the agreement.
Using the funds for unauthorized expenses would put you in violation of the agreement. The repercussions for this depend on whether you misused federal student loan funds or private student loan funds. If the Department of Education finds out about the misuse of federal loan funds, they will ask for repayment of the full amount of your loan with immediate effect. The consequences for misusing private student loans will vary depending on the lender. Some lenders may initiate legal action against you.
What Should You Do with Student Loan Money That’s Left Over?
Ideally, you should take time to calculate your estimated costs and only borrow as much as you need. Borrowing extra ‘just in case’ isn’t a great idea as interest starts incurring from the day the funds are released, which means you’d be paying more in accrued interest unnecessarily.
If, after careful calculations, you still have money left over after considering tuition and other related expenses, the best thing to do is to pay it back immediately. As we said earlier, interest starts accruing from the day the funds are disbursed. Returning the money immediately allows you to reduce the principal balance. This saves you the most money on your loans as less interest will accrue over the lower principal.
If your personal funds are limited and you don’t have any way to get extra money mid-year to cover expenses such as rent, groceries, or other essentials, consider keeping the extra funds. Consider this a last resort though and make sure to only use the money for essential expenses, not luxuries.
If you have a lot left over after paying college expenses, only keep what you need and return the rest to minimize the interest accrual.
Alternative Ways to Pay For Living Expenses
While taking student loans is the easiest way to get money to cover your living expenses, it’s also the most expensive option. With the interest that accrues over your student loans, you’ll be paying off your student loan debt for several years after you graduate. As a rule, it’s best to borrow as little as possible and explore other ways to pay for living expenses and other college costs if you can.
Consider one or more of these ways of getting money other than student loans:
- Scholarships – This is a great source for getting free money for college. The best part is there are no limits to the number of scholarships you can apply for or the amount of award money you can win.
- Work-study – Work-study allows you to take up part-time work so you earn an income to cover at least part of your education expenses. Most jobs are on-campus but they may also be off-campus.
- Part-time job – If you don’t qualify for work-study, consider taking up a part-time job. You’ll work only a few hours a week and the money you earn can come in really useful for paying your education expenses.
Along with these great options, think about ways to cut expenses. There are always ways to cut costs that we generally tend to overlook. For example, renting or buying used textbooks instead of new ones can save you a few hundred dollars right there. Taking the bus instead of driving and canceling unnecessary TV or music subscriptions can all add to your cash flow.
Additional Tips For Spending Student Loan Funds For Living Expenses
Now that you know that you can use student loans for living expenses, it’s time to think strategically about how to use it.
- When using your student loan to pay for rent, look for an apartment nice and safe, but still affordable. Living well is vastly different from living luxuriously. The difference in cost can make a huge change in how much you pay back later.
- Create a budget that takes into account your fundamental expenses—rent, board, textbooks, utilities, phone bills, school supplies, and transportation.
- Organize all your bills and prioritize payments. Always pay off essentials and your credit card first. You don’t want to end up having to pay extra fines or late fees.
- Resist overspending. Spring break getaways, drinks at the bar, and nights out at the movies, while fun, can break the bank if you go overboard.
Always remember, if you need to use your student loan for living expenses, use it wisely. The less you borrow, the lower your debt will be when you finish college, and the less you’ll have to pay back.
Do you need a student loan to help cover your next semester? Use College Raptor’s Student Loan Finder to discover personalized loans. Compare lenders and interest rates to find the ideal student loan for you!
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5.34%-15.96%* Variable
3.99%-15.61%* Fixed
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3.69% - 16.49% Fixed
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