When you take out a student loan, your lender sends funds directly to your school. After your school deducts what’s needed to pay for expenses such as tuition and room and board, it will disburse any remaining money to you for education-related expenses. But these expenses aren’t just books and class fees. Student loan funds can be used to pay for rent, groceries and more.
Before you have a heyday with your leftover cash, it helps to understand what the Department of Education considers “qualified educational expenses.” While lenders don’t track how you use your student loans, there are potential consequences for misusing the money.
What Can You Use Student Loans For?
Student loans can be used to pay for a range of costs related to higher education. Whether pursuing an undergraduate or graduate degree, federal and private lenders allow you to use student loans to cover these expenses.
— Tuition.
— Fees, including lab, materials and campus fees not covered by tuition.
— Meal plans or groceries.
— Textbooks.
— Child care expenses.
— Computers and software.
— Costs of studying abroad.
— Disability-related expenses.
— Transportation to and from school.
— On- or off-campus housing, including rent and utilities.
— Essential housing supplies, including sheets and towels.
The list of qualifying expenses is relatively broad, so here’s an easy way to remember what student loans can be used for: If the expense is essential to your educational success — as in, it supports your living arrangements, basic daily needs or attendance at school — it’s likely a permissible use of student loan funds.
[Read: Best Private Student Loans.]
What Can’t You Use Student Loans For?
Even though lenders don’t track how you use your student loans, that’s not an excuse to go crazy with the cash. Since federal and private student loans should be used for educational expenses, there are many possible ways to spend student loan funds that don’t make the cut, including:
— Buying a car or motorcycle.
— Purchasing a condo or house.
— A shopping spree to ease final exam stress.
— Spring break vacations with friends (or anyone).
— Partying with friends — no matter how “essential” you think it is.
— Hiring a housekeeper — even if you split the expense with your roomies.
— Tickets to a Beyoncé or Taylor Swift concert — or any kind of entertainment.
Are There Consequences for Misusing Student Loan Funds?
If you choose to use your student loans to pay for things you shouldn’t, there are potential consequences — for your finances and education, and from your lender.
Financial and Educational Consequences
“One of the biggest consequences of misusing student loan funds is accruing more student loan debt,” says Kristin Balazentis, senior vice president of student lending at PNC Bank.
Say you decide to splurge on a trip to Cabo with $1,000 of your student loan money. While that may be a great way to spend spring break, it’s not an essential education expense, and you’ll have to repay that money — with interest.
By spending student loan money on noneducational expenses, Balazentis says you could also come up short on the money you actually need for items like rent and textbooks. This could create a situation where you need to borrow more money or turn to higher-cost options, like credit cards, to meet expenses.
If you have loan funds left over after covering the necessities, Balazentis says you can usually return leftover funds to your private lender. This will reduce how much interest you will pay over time. With federal loans, you can typically cancel some or all of your loan if your school disbursed the money within the past 120 days.
Lender and Legal Consequences
Aside from potential impacts to your education and total debt, misusing your student loan funds could have consequences from your lenders, Balazentis says.
If your school’s financial aid office discovers that you’re misusing federal student loan funds, it could report you to the Department of Education and demand repayment of your loan funds. If you have private student loans and your lender discovers you’ve misused funds, your loan could go into immediate default. A defaulted loan could not only put a strain on your finances, but it could also impact your ability to qualify for additional student loans necessary to continue your education.
“In extreme cases, students who misuse their student loans may be legally prosecuted and face fines or imprisonment,” Balazentis says.
[Read: Best Student Loan Refinance Lenders.]
Can You Cover Expenses Without Using Your Student Loans?
Even though student loans can be used for basic living expenses like meals and a new set of dishes for your kitchen, you may be better off paying these expenses out of pocket. Doing so could help keep your total student loan debt as low as possible. To help fund day-to-day expenses without increasing your student loan debt, there are multiple ways to drum up cash. Options may include:
— A part-time job, even a few hours a week, can help you cover meals and nights out with friends.
— Crowdfunding can help you get through a financial rough patch and help avoid running up high-cost debt from credit cards or other sources.
There are certainly more options that can help you avoid using student loans to pay for smaller expenses, and you should explore them. Your top priority should be lessening your financial burden when you graduate, says Ken Ruggiero, founder, chairman and CEO of Ascent Funding, a private student loan lender.
“Borrow as little as you need to live your life the way you need to be successful in your academic pursuits,” Ruggiero says. Then you can graduate with more financial peace of mind than someone who used their student loans to pay for anything and everything.
[Read: Best Student Loans for Bad Credit]
What Student Loans Can Be Used For: A Quick FAQ
To avoid searching every question you might have about how student loans can be used, these top questions will quickly answer what you need to know.
Can Student Loans Be Used for Living Expenses?
In a nutshell, yes, but it helps to put the word “basic” in front of “living expenses” to stay on the safe side. For example, groceries are basic living expenses, but hiring a housekeeper for your apartment or dorm room is not.
Can You Use Student Loans for Rent?
Student loans can be used to pay for off-campus housing, which includes rent. Loan funds can also be used to pay for utilities and essential furnishings like dishes, a microwave and necessities like toilet paper.
Can You Use Student Loans for a Car?
Purchasing a vehicle — including cars, motorcycles and bicycles — isn’t a permissible use of student loan funds. However, you can use loan funds to pay for gas, a bus pass, tolls and basic car maintenance.
What Can Federal Student Loans Be Used For?
Federal student loans can be used to cover the cost of attendance, or COA, at schools that participate in federal student aid programs. The school calculates your COA, which includes a range of expenses such as tuition, housing costs — both on- and off-campus — school fees, transportation and child care.
What Can Private Student Loans Be Used For?
While terms vary among lenders, many private student loans can be used for the same purposes as federal student loans. Before you take out a private loan, you should speak with the lender and ask if there are any expenses funds cannot be used for based on the company’s promissory note.
Reviewed on April 3, 2024:
This article was published previously at an earlier date.
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