You might not think of your college loans as extra cash hitting your bank account.
But once your school uses your loans to cover tuition, fees, and room and board, you’ll likely have some money left over.
That’s because your school’s cost of attendance, which is used to determine your loan amounts, includes other expenses, such as books and transportation. These extra costs aren’t deducted from your loan funds.
Here’s how you can effectively use leftover money from your loans to cover additional college costs.
How do you receive leftover funds from your college loans?
First, it’s important to understand how your student loans are disbursed.
Federal student loans are sent directly to your school, typically via two disbursements during the academic year. If you’re a first-time borrower, your payout might be delayed by as much as 30 days.
The school applies the loan amount to your most essential academic expenses: tuition, fees, and room and board. What’s remaining will be sent to you via cash, check, or direct deposit.
The student loan disbursement process is similar for private student loans. Lenders rarely send funds directly to you. More often, money from private college loans is disbursed to your school. After all, your lender needs your school to verify that you’re enrolled and not attempting to borrow more than your cost of attendance.
You could, however, end up with leftover funds from your college loans if:
- You plan to live off campus and your school refunds you for on-campus housing costs.
- You borrowed more than you needed.
- You scored a last-minute scholarship that made part of your loan amount unnecessary.
Best ways to handle your leftover student loan money
If you end up with more student loans than you need, you have several options. Here are a few you can take advantage of.
Return your leftover college loans
For federal loans, you can return a student loan without paying a dime in interest. You’ll need to cancel the loan within 120 days of disbursement by working with your school and loan servicer.
If you return a private loan to your lender, you’ll still be responsible for interest. However, you could return the leftover funds as a student loan payment. It won’t immediately erase your debt, but it could make a big dent.
Say you have $5,000 remaining on a $15,000 loan with a 5.00% interest rate. If you returned that $5,000 to your lender in one big payment, you could save $2,476 in interest. That’s because you’d be cutting about four years off your repayment term, according to our lump-sum payment calculator.
Here’s another scenario: You’ve covered your academic expenses and have $1,000 of loans left in your bank account. Consider returning it to your lender instead of blowing it all on your summer vacation. You could always travel by finding scholarships for a study abroad program.
It would be wise to return your loans if you can foot the bill for secondary college expenses on your own. If you have a part-time job, for example, your paycheck could cover the cost of your meal plan and textbooks.
Put the rest of your college loans toward other education costs
Before your government loans are disbursed, you’ll be required to complete federal entrance counseling. As part of your counseling, you’ll learn that your loans can only be used on:
Tuition and fees
Room and board
Books, supplies, and equipment, plus a personal computer
Child care expenses
Although you could likely get away with spending federal loan money on other expenses, it would violate your loan agreement. The Office of Inspector General also maintains a hotline for anyone to report a misuse of Department of Education funds.
As for private loans, read your loan agreement or ask your lender about how your loans can be used. Discover, for example, recommended that you use your loans on academic expenses. But it won’t track your spending to make sure that you do.
Use your leftover college loans wisely
One out of 5 college graduates used their student loans on noneducation expenses, according to our 2016 student loans and graduates survey. You can bet that dinners out and vacations are listed under what you can’t spend your student loan money on.
Whether they come from the federal government or a private lender, student loans are meant to pay for primary education costs. However, you might need any remaining balance to cover additional expenses, such as books and transportation.
But don’t discount the possibility of returning your college loan leftovers to your lender. You might be able to pay for those books or that bus ride to campus by taking on a job or side hustle instead.
If you’re tempted to spend your leftover loan money on something less educational, look into any of the alternative solutions listed above.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB) or Turnstile Capital Management, LLC (TCM), which are not affiliated entities. Certain restrictions and limitations may apply. Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. All loan products may not be available in certain jurisdictions. Other terms and conditions apply. Ascent is a federally registered trademark of TCM and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|3.97% – 12.97%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.12% – 10.98%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|4.92% – 10.01%7||Undergraduate and Graduate|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|