Many students who receive financial aid get a refund at the beginning of the semester — a lump sum meant to cover costs like living expenses, transportation and books and supplies. Some students turn that refund into a monthly “paycheck,” a strategy that can help with money management.
“When I was almost 50 and went back to school after being laid off from my job, I most definitely used my financial aid as a paycheck,” says Debi Goldben, who attended the College of Central Florida for her associate degree. “I was attending a community college, and there was always money left after tuition and fees. I always bought used books and then budgeted the rest over the term.”
Goldben, who was married at the time, parceled the lump sum she received from financial aid into $200 earmarked amounts each month. She used that $200 a month, along with her weekly $100 paycheck from work-study, to pay for books and living expenses for her family of four.
[Read: How to Pay for College as an Older Student.]
“It may have only been a $200 a month, but it helped. We joked about me getting paid to go to school,” says Goldben, who lived frugally with her refund and work-study earnings to make ends meet.
But many students can find it difficult to budget or may tempted to make poor decisions with their refunds, like spending the money on vacations and new clothes. There are also instances when the financial aid refund isn’t enough to cover the cost of attendance.
“Students aren’t used to having tons of money, and they will use their entire refund check if it’s a substantial amount” says Joseph Newman, a financial aid coach at Moon Prep, an Atlanta-based college admissions counseling firm. “I’ve seen students use their entire refund checks in a matter of days when they get the lump sum.”
In fact, at some point while they’re in school, more than half of college students run out of money before the end of the semester, according to a 2016 survey by Edvisors. Financial aid experts say this is usually due to unanticipated expenses or poor money management.
[Read: What to Know About Employers That Pay Student Loans.]
“Very few students receive financial literacy training in high school,” says Mark Kantrowitz, a college financial aid expert and adviser to Savingforcollege.com.
He says when students receive the fund as a lump sum, they may spend it on items they don’t really need and not set enough money aside for future expenses. “It’s very easy to spend more than one can afford if the shortfall won’t be realized until later,” he says.
Manpower Demonstration Research Corporation, a nonprofit organization, conducted a study on the Aid Like A Paycheck program. Funded by several private foundations, including the Bill and Melinda Gates Foundation and the Annie E. Casey Foundation, the program aimed to determine whether biweekly disbursement of financial aid refunds can help students stretch their aid money further. Two Houston-area colleges — San Jacinto College and Houston Community College — as well as West Hills Community College District in Coalinga, California, participated in the study. MDRC plans to release a final report on the Aid Like A Paycheck project later this year.
[See: 10 Facts to Know About the Federal Work-Study Program.]
Based on the success of the program, San Jacinto College decided to continue disbursing aid that way after the pilot program finished in spring 2016, says Robert Merino, dean of financial aid at SJC; the Houston-area college enrolls nearly 30,000 students.
Critics of Aid Like A Paycheck argue that students need their money upfront to pay for college-related expenses, Merino says. “The argument against that is [students] don’t accumulate their costs in one lump sum. They accumulate them monthly. As long as they’re receiving their financial aid ahead of when their bills are due, they’ll be OK,” he says.
Here are some takeaways on how using aid like a paycheck can help college students.
Students at low-cost institutions can benefit. If the cost of attending a school is low, the student will receive a significant credit balance as a refund that he or she can use to budget for ongoing expenses during the semester, Merino says. He says this type of system works well at low-tuition colleges like SJC, since the Pell Grant covers many students’ tuition.
Using aid like a paycheck can help students budget better. Monique Lindon, a 22-year-old student at SJC who is studying social and behavioral sciences, says receiving multiple disbursements of financial aid has helped her manage money. “I would usually get a large disbursement at the beginning of the semester and put all of it into my savings account. However, I would spend more knowing that I had a large amount in my account. When I started receiving smaller amounts through the Aid Like a Paycheck disbursement method, it helped me become better at budgeting by keeping a smaller amount in my checking account,” she wrote in an email.
Experts say these refunds are for out-of-pocket expenses, and it’s important to set up a budget to help manage the amount spent each week or month during the semester.
Goldben says: “As far as schools paying out financial aid a little at a time to help with budgeting, some people need that experience, as they don’t know or understand how to live on a budget. I knew how to live on a budget — and a tight one at that — so a lump sum payment was appreciated as I knew it was there for emergencies.”
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
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How to Use Your Financial Aid Like a Paycheck originally appeared on usnews.com
