Student loans are designed to help pay for tuition and fees but there are other ways you can use them to pay for college. Both federal student loans and private student loans can be used to cover the cost of attendance at your chosen school. After taking out tuition and fees (plus room and board if you live on-campus), your college can forward excess student loan funds to you, which you can use to pay living expenses.
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What expenses can you use student loans for?
The Office of Federal Student Aid mandates that student loans must be used to pay for education expenses. But there's some flexibility in how you can use federal student loans, beyond tuition and fees.
The list of expenses you can apply federal student loans to includes:
- Housing and housing supplies. Loan funds can be used to pay for living expenses, whether you're staying in the dorms or renting an apartment or home. That includes rent and utilities. If you need to buy linens, rugs or other basic housewares to outfit your dorm room or apartment, those supplies can be purchased with student loan money.
- Books, supplies and equipment. Textbooks can easily cost several hundred dollars per semester and you may also have other costs related to your major, such as special lab safety equipment or a new laptop. All of those things are covered as educational expenses for student loan purposes.
- Transportation to and from school. If you don't live in the dorms and travel to campus every day using public transportation or your own vehicle, those costs can be paid for with student loans.
- Child care. Student loans can also be used to pay for child care expenses if you pay someone to watch your children while attending classes.
- Study abroad costs. Spending a semester or two abroad can be an eye-opening experience and as long as you're attending an eligible school, you can use federal student loans to pay for your expenses.
With private student loans, it's typically up to the lender's discretion to set guidelines on what you can or can't use loan funds for.
"The pros of borrowing more than you need include having extra money for an emergency, unforeseen expenses or to have a better quality of life while going through school," said Michael Gerstman, CEO of Gerstman Financial Group in Dallas, Texas.
Using excess student loans as savings can be beneficial if you don't have an emergency fund in place. But since this is borrowed money, you may be better off using the money for education and finding other ways to grow your savings.
Is there anything you shouldn't use student loans for?
According to Gerstman, there are very few things you can't use a student loan to pay for. But before you spend, consider how you stand to benefit.
Both federal student loans and private student loans must be repaid with interest. The negative, said Gerstman, is that it can increase the cost of repayment once you graduate since you'll have more money to pay back. It could also take you longer to pay your loans off.
When using money to pay for things other than education expenses while earning a bachelor's degree or any other degree, it's important to make sure it's worth it.
With that in mind, here are a few things you may want to think twice about using student loans for:
- Travel other than study abroad.
- Take-out food or dinner out with friends.
- Entertainment, recreation and hobbies.
- Electronics and gadgets.
- New clothes.
- Cars or other vehicles.
- Paying off other debts.
How to budget student loans for living expenses
If you're borrowing money for college and you plan to use some of the money for living expenses, making a budget is an important step.
Your budget should spell out everything you spend money on each month. Add up any income you have from working, a side hustle or financial support from your parents and figure out how far that goes toward covering expenses. If there's a shortfall, then you can look to student loans to cover the gap.
It's also important to avoid spending temptations. For example, using student loans to pay for dinner out or a vacation with friends may be fun, but if you're strapped for cash it could make more sense to reserve spending for needs versus wants.
If you'd like to avoid having extra student loans altogether, the simplest way to do that is to calculate exactly what you need to pay for school and only borrow that amount. And remember, Gerstman said, you can always return excess student loans to the lender so you have less to pay back.