When Kevin Lilly was in one of his last semesters at Lasell College in Massachusetts, he realized he had taken more student loan money than he needed.
The Boston resident was commuting to school from home, buying used textbooks and had scholarships that supplemented his tuition.
So he told the financial aid office to send the surplus back.
“I didn’t want to end up paying interest on that later on down the road,” he says. “I’ve seen people take that money and use it on other things, but to me I just can’t spend borrowed money and get myself deeper in a hole.”
[See how to avoid turning into a scary student loan statistic.]
Although it can be tempting to accept all the loan money offered in a school’s financial aid offer, experts say students should only take what they actually need for tuition, fees and living expenses.
“We can’t camp on their doorstep to see how they spend that, but we’re always preaching that they really should only borrow what they need,” says Dean Obenauer, assistant director of financial aid for financial literacy at Creighton University in Nebraska.
— Estimate your budget: Before blindly accepting all the money in a financial aid offer, students should take the time to figure out a budget. All universities publish an average “cost of attendance,” which in most cases includes estimates for books, transportation and personal expenses.
That can be a good initial guide to students for spending, said Jonathan Burdick, dean of admissions at the University of Rochester in New York, in an email.
“Some students will need or want to spend more , and some will find ways to spend less,” Burdick said. “The smartest students monitor their spending and over time learn to budget according to their own lifestyle rather than relying on the ‘typical’ calculation forever.”
Obenauer suggests that, at the least, students scratch out numbers on a piece of paper to calculate their costs after tuition and fees are paid, including books, rent, food and other ongoing costs.
[Check out 10 tools to help estimate the cost of college.]
— Know when to decline a loan: S tudent s will often get a refund check after their tuition is paid to use for living expenses. Rather than going on a spending spree, it may be wise to reject a loan upfront if you anticipate won’t need the full check.
Take into account unique circumstances. S tudent s may be able to reduce their expenses by commuting or living in lower-cost housing. They may also have other sources of funding, for instance, from private scholarships.
Students should be aware that many types of loans come with an initial administrative or security fee, “so it’s valuable for them to feel pretty certain that they will need and use the loan before they take it,” Burdick says.
Burdick also warns against taking out a student loan with an eye toward future planning. The exceptions might be if the student foresees expenses for an upcoming summer term or funding for study abroad travel.
“But in most circumstances, taking out a loan in order to use all or part of it as ‘savings’ for any length of time doesn’t make good financial sense,” Burdick says.
Just make sure not to substitute credit card debt — which tends to have higher interest rates — for student debt, he added.
[Read U.S. News data on college costs and financial aid.]
— Understand how to decline a loan: Most schools use an online portal that allows students to fully accept, decline or accept a smaller portion of a loan, Obenauer says.
The good news is that students can change their minds, he says, as long as it’s within that academic year. If they reject a loan and an unexpected cost comes up, they can go back to the financial aid office and request it.
When deciding which loans to reject, students should consider interest rates, payback rules, options for income-based repayment plans and options for suspending payments during graduate school or other times, Burdick says.
“Approach every loan as a wary consumer,” Burdick says.
Generally, the “best” loans to take are federal direct subsidized loans and federal Perkins loans, Burdick says. Keep in mind that the interest on direct unsubsidized loans begins accruing immediately, even though students aren’t required to make interest payments while in school.
Check out this grid from the U.S. Department of Education’s Federal Student Aid office on which aid to accept first.
“I’ve never had a student come back and say, ‘I wished I wouldn’t have borrowed to attend the university,'” Obenauer says. “But I have had students tell me, ‘I really didn’t need to borrow as much as I did.'”
More from U.S. News
Weigh Payoff of Summer School, Summer Job
5 Numbers to Check to Compare Financial Aid Awards
Pros, Cons of Paying for College With Savings Bonds
Learn When to Decline a Student Loan originally appeared on usnews.com
