Student loans can be used for multiple purposes, in addition to covering tuition and other fees. You can pay essential costs like accommodation, transportation, books, and supplies with student loan proceeds. However, there is a long list of do’s and don’ts when it comes to student loans for living expenses.
This guide explains the details of how you can spend student loans for living costs by answering 12 Frequently Asked Questions.
1. Can I Use Student Loans for Living Expenses?
Yes, you can use funds received through private or federal student loans to afford living expenses. However, you need to be careful about what type of expenses you are covering.
Some expenses like rent or transportation costs are included in the student loan’s scope. Those are essential living expenses. Meanwhile, non-essential living costs such as the cost of a new car should not be covered with student loans.
2. How the Amount for Student Loans are Calculated?
Generally, it is your school’s responsibility to calculate the Cost of Attendance. This number shows how much money a student needs to study and graduate, including the expenses for tuition and other fees, accommodation, books, equipment, supplies, transportation, etc. In other words, the Cost of Attendance usually covers the essential living expenses.
In turn, the Cost of Attendance depends on many factors, such as the location of the school. If you study in low-cost cities, your COA might not be high. Each school has its own way of COA calculation.
3. What is the Average Amount of COA?
Recent research shows that during the last academic year, the average in-state cost of attendance for a four-year public university was around $22,000. This amount was even higher, $50,000, for students in private universities.
4. What are the Essential Living Expenses Included in COA?
As mentioned, not all types of living expenses are covered by the Cost of Attendance. Only those that are essential for studying are included. Usually, it is possible to find the details of using student loans for living expenses. If you check the loan agreement you signed when taking out a loan, you can find more accurate information. Here are some examples of acceptable costs:
- Accommodation- whether you live on-campus or off-campus, the Cost of Attendance and student loans cover the rent, room, board, utilities, etc. in other words, you can live in a dormitory or get an apartment with your friends. In both cases, you can use student loans for living expenses – for accommodation.
- Food- sure, another necessary spending is made for food. The Cost of Attendance covers food expenses if you enroll in college meal plans or buy your groceries. Yet, it does not mean you can use student loans for eating out.
- Supplies, Books, Equipment- any item necessary for your education can be included in the Cost of Attendance. If you need books, pens, software, or a laptop for your studies, you can purchase them with the proceeds of student loans. Keep in mind that those supplies should be critical for your major studies.
- Personal supplies- personal hygiene items, medication, housing supplies like dishes can be purchased with student loan money.
- Dependent expenses- if you have a dependent, you can use student loans for their living expenses. However, you need to inform the financial office of the school that you have a dependent.
5. What is not Included in Essential Living Expenses of COA?
There also exist some expense categories that you should avoid making with student loans. For example, you cannot purchase a new car with your student loans for living expenses. You can only use the money to buy gas or maintain the existing car.
Besides, traveling for fun or spendings on entertainment like Netflix subscription should be avoided. As mentioned before, using the money for food is acceptable, but it should be modest. You should not go out frequently and order food with your student loan money.
6. What if I use Student Loans for Non-Essential Living Expenses?
There is no organization following all your spendings and determining if you use money wisely. Hence, it is hard to say what the consequences will be because you might avoid them.
However, if your lender detects that you misuse the student loans, you can face negative implications. For example, the lender can breach the agreement and require you to pay back the entire balance immediately.
Alternatively, the lender can reject all your future loan applications. What is more devastating is that you will be required to pay interest for all money you used for non-essential spendings.
7. Why are Non-Essential Expenses Risky?
Spending the student loan funds for non-essential items could have many consequences. But even if you get unnoticed, you will face the most significant challenge- the interest. When it is time to repay the debt, you will pay additional money – private or federal loan interest rate – for every unnecessary item. It means your repayment will cost more than what you originally spent.
Considering that millions of borrowers struggle to repay the debt, it is essential to get student loans in needed amounts. If your student loan amount is greater than what you need for education and living expenses, it is better to return the excess. In this way, you will avoid costly repayment processes. It is not worth having fun with your expensive student loans.
8. Which Lenders Distribute Student Loans for Living Expenses?
In general, students in need of outside funding should first check their federal loan options. These student loans can be used for essential living expenses. Besides, they are usually cheaper than private student loans.
If you cannot qualify for federal student loans, you can also find private lenders who allow using student loan funds for living expenses. For example, student loans from College Ave, Earnest, Sallie Mae, or Citizens Bank can be used for a room or apartment, books, supplies, transportation, etc.
Yet, before you take any loan, read the loan agreement carefully to see which expenses are included in the student loans. Additionally, borrow only the amount you need.
9. How Can I Use Student Loans for Accommodation Outside Campus?
As mentioned, you can use student loans for living expenses, particularly for accommodation, either on-campus or off-campus. It is advisable to deposit all money left after deducting tuition and other fees from the school. You can deposit money to any bank you like and write a simple check to pay the rent.
For better financial management, make sure you are monitoring your monthly expenses. Keep in mind that the money in the bank account should cover all necessary spendings for one semester or year. Hence, spend your money wisely and avoid unnecessary expenses.
10. What to Do If I Have Leftover Student Loan Funds?
One of the best ways to do with leftover money is by returning it to the lender. This money comes with an additional cost of interest. Hence, keeping it will generate more money outflow in the future. So, if you do not need the leftover funds, make sure you return them.
It is also good to keep the money for future payments, such as next semester’s tuition fee. Some students avoid returning money because they know that they will hit the maximum limit for student loans the next time they borrow. Additionally, you can keep the money to make early payments for debt, but it is not a financially wise strategy.
In general, whichever option you choose, make sure you understand that this money should be paid back, either immediately or over time, together with the interest rate.
11. Why Keep Living Expenses at Minimum?
When you get a loan, you might be offered more money, or you can find out that you are left with spare money after paying tuition fees. Sure, you can use student loans for living expenses. However, keep these expenses at a minimum level. Here are a few reasons:
- There are aggregate loan limits that show the amount of money you can borrow during the study period. If you borrow more, you can lose eligibility for federal student loans during your final years. In such a case, you will need more expensive private loans.
- Interest payments are based on the original loan balance. If you get more money than needed, you will pay more interest.
- In case, if you cannot repay the debt, it is hard to discharge a student loan through loan bankruptcy.
- If you default, your wage can be garnished, or tax returns can be suspended.
- Your credit score can decrease if you act irresponsibly and struggle with payback.
12. What can be a Better Option to Finance Living Expenses for Students?
Using student loans for living expenses, unless unnecessary, is acceptable. However, as mentioned, student loan balances should be kept at minimum levels.
If you need to afford your living expenses, or even student loans are not enough for you, it is better to find alternatives, such as work-study programs.
A student loan is a debt that requires repayment. However, a work-study program is like employment. You will work, get your wage and spend for your living expenses however you wish. In this way, you do not need to worry about repayment later.
Federal work-study programs are available to undergraduate, graduate, and professional students. You can work part-time on-campus or off-campus to earn an hourly or monthly salary. The work-study programs depend on available funds, the financial need of students, and the timing. You can ask more questions from your school’s financial aid employees.
Additionally, keep in mind that work-study is not the only federal financial aid program that does not involve repayment. You can check scholarships and grants to finance your education, together with living expenses.
Contact Student Loans Resolved for More
Getting a student loan is about keeping the fine line between financing all education costs and not exceeding what is needed. You can use student loans for living expenses only if they are essential. Even in this case, every penny spent on living costs will require repayment with interest rates. Before you get any student loan, read the terms and understand their consequences on your finances. For better guidance, you can get help from debt specialists like those in Student Loans Resolved. We provide FREE Consultation to address your concerns. Contact us now.