Student loans don’t just cover tuition. Often, you can use these loans to pay for any education-related expenses, including housing, food expenses, transportation, and books. You might even be able to use college loans for that amazing study abroad you’ve been dreaming about. But not everything is a qualified educational expense. Read on to learn what can student loans be used for to ensure that you’re getting the most out of your education opportunities.
Understanding student loans
Normally, student loans are sent directly to the school. Then, after deducting tuition, the school sends the remainder to you. While most student loan lenders don’t track how you use the loans, you face potential consequences for misusing the money.
You can apply for both federal and private student loans. Here’s how each of those works.
What are federal student loans?
Federal student loans are loans offered by the U.S. Department of Education’s federal student loan program through the William D. Ford Federal Direct Loan Program. With federal student loans, the U.S. Department of Education is your lender. You’re limited to $12,500 annually and $57,500 total in federal student loan funds. You might be able to qualify for four different types of direct federal loans.
- Direct subsidized loans: For eligible undergraduate students who demonstrate financial need.
- Direct unsubsidized loans: For eligible undergraduate, graduate, and professional students, and not based on financial need.
- Direct PLUS loans: For graduate or professional students or the parents of dependent undergraduate students. These loans are for education expenses not covered by other financial aid and aren’t based on financial need but do require a credit check.
- Direct consolidation loans: For students who want to combine all federal student loans into a single loan.
What are private student loans?
Banks, credit unions, online lenders, or individuals offer private student loans to pay for education costs. Private student loans can fill gaps in college payments left by federal loans. To qualify for private student loans, you need a good credit score and steady income or a co-signer (like a parent) with these.
Private student loans don’t have the same limits as federal student loans, potentially allowing you to borrow more. However, they might have higher interest rates. Check with individual lenders to understand lifetime loan limits, interest rates, fees, and other terms.
What expenses can be covered by student loans?
Here’s an overview of the type of expenses you can cover with student loans.
1. College tuition and fees
You can use student loans to cover direct education costs, which could include institution fees, insurance costs, and other documented costs. Colleges may charge a registration fee, lab fees, technology fees, events or activities fees, or other fees you may pay with student loans.
2. Books and supplies
College textbooks can add up. In addition to textbooks, you can use student loans to cover notebooks, pens, book bags, and other school supplies. Remember the school supply lists you had in high school? These can be covered using student loans.
College equipment is more costly than ever before, although it can make students’ lives easier. You can buy a personal computer or tablet and the necessary software with student loans. You can also use student loan funds to cover apps to take notes like Evernote, Onenote, or Simplenote or other apps for your college classes, such as Microsoft Office or Adobe Creative Suite.
Student loans can be used for other equipment you’ll need for college, like a camera if you enrolled in a photography class or a videography course.
4. Housing expenses
You can use student loans to pay for housing costs and related expenses such as utilities. While some student loans may restrict housing types, you can generally pay for any type of housing. Use loans to rent a private apartment, pay a mortgage, or live in on-campus housing.
5. Transportation costs
Transportation costs include all types of transportation to get to and from school, including parking passes, gas expenses, public transit costs, car maintenance, and flights to and from school.
6. Meal expenses
You’re allowed to use student loans for meal expenses, such as a college meal plan, or for buying your own food. It’s up to you to decide how much you spend on meal expenses..
7. Study-abroad costs
If you participate in a study abroad program as part of your university’s curriculum, you can cover the costs with student loans. You can use student loans to pay for tuition and fees, textbooks, living expenses, and the travel costs of getting abroad and back.
If you travel anywhere for fun during study abroad, these expenses must come out of your own pocket. For example, if you take a weekend trip to Paris while studying abroad in London, the London portion is related to your education. However, you must pay for the Paris trip with private funds.
8. Dependent care expenses
Dependent care expenses, such as childcare or care for adults under your guardianship, also qualify as education expenses, as you wouldn’t be able to attend or pay attention in school if you’re taking care of someone else. Ask your college if there is an on-campus daycare or if they have discounts with nearby childcare centers to potentially save more on childcare expenses.
What not to spend your student loans on
While many things fall into education expenses, you can’t pay for everything in your college experience with student loans. Here’s a list of what you’ll need to cover privately.
You can’t use student loans for entertainment. This includes sporting events or tickets, video games, movie or theater tickets, or any other activity that you do for recreation. Unless you’re a college athlete, expenses related to practicing a sport also aren’t considered education expenses.
2. Spring break travel
Spring break is an extension of recreation, entertainment, and leisure, which isn’t related to your education, even if many students would like to argue otherwise.
3. Cleaning services
Cleaning services aren’t directly related to your education; therefore, you can’t pay for it with student loans.
4. Dining out
Unless your campus meal plan includes certain restaurants, dining out falls into the category of entertainment and doesn’t count for student expenses.
5. Auto loan payment
While you can use student loans for basic transportation costs like gas, you can’t use them to pay for auto loan payments or purchase a car.
6. Gym memberships
You can’t use student loans for entertainment, and this includes gym memberships, sports club memberships, or other recreational activities.Alternatively, you can use your school’s facilities
7. Invest in stocks, bonds, or exchange-traded funds (ETFs)
Student loans are exclusively for education, and therefore you aren’t allowed to use them for investing.
What should you do with unused student loan money?
If you’ve been frugal at the end of college, you might have unused student loan money. You typically have two options: return the money or use it towards loan repayment. Here’s how each of those works.
Return the money
Returning the money means you’ll have less total student loan debt. This can reduce monthly payments and save on interest, especially if you return unused money right away. You can usually cancel or return federal student loans within 14 to 120 days of disbursement without fees.
Remember that if you keep the money, you’ll have to repay a larger sum than you borrowed because of interest payments.
Put the refund toward your first student loan payment
If you have extra money saved after paying for college, you can put the funds towards student loan payments instead of returning student loans. The advantage to this is that you might need extra time to get a job after college, and then you’ve got a cushion to make payments when student loans are due. The disadvantage is extra debt, and you’ll pay more interest for those funds.
Using student loans wisely
Student loans can help you get a good education and diverse experiences to prepare for an interesting, fulfilling career. After you graduate, student loans can become a pressure and burden that take years to pay back. When applying for student loans, consider alternative income streams, scholarships, grants, and other financial aid to pay for college to reduce your debt after graduation.
Are there any restrictions on using student loans for personal expenses?
You cannot use student loans for personal expenses that aren’t directly related to education costs. That means you’ll need to pay for gym memberships, auto loans, non-school-related travel, eating out, and other personal expenses from private funds you’ve earned, saved, or been given.
Can student loans be used to pay for professional development courses or certifications?
Yes, you can use student loans to pay for professional development courses and certifications in most cases. You can also use student loans to pay for licensing and professional testing fees after graduation.
Can student loans be used to pay for student loan refinancing or consolidation?
In some cases, you can refinance student loans or consolidate student loans into a single payment. You can refinance student loans with a private lender or consolidate federal student loans.