Why would you ever return student loans? After all, when you’re paying for college, it seems like you can use all the help you can get.
That’s certainly the case when it comes to scholarships and grants that you don’t have to pay back. However, you don’t want to borrow a penny more than necessary when it comes to expensive student loans, which will increase your debt burden and accrue interest over time.
If you find yourself with excess student loans, you may be wondering what happens to unused student loan money and if you can return it. Fortunately, you can return student loans without paying interest if you borrow federal direct student loans.
It is possible to return unused federal student loans. However, you must do so within 30 to 120 days. If you are able to return your loan, you will only be responsible for giving back the loan amount you wish to return. You are not responsible for any associated fees or student loan interest that has accumulated since the loan was disbursed.
Here’s how to do it:
Contact your school’s financial aid office
As soon as you know you would like to return all or part of your federal student loan, call your school’s financial aid office. They can instruct you on the specifics of how to proceed, but you can generally expect to be instructed to do the following, depending on how many days after disbursement you’re requesting a cancellation:
Returning student loan money after 14 to 30 days
If you provide a written request for cancellation up to 14 or 30 days from either the date that the school notified you of your right to cancel or the date the loan money was disbursed, your school should be able to return your student loan money to the loan servicer for you. Note that the exact deadline will depend on the specifics of your situation.
Just be sure to keep a copy of the letter and send it via certified mail with return receipt. This will serve as proof of the content of your request, as well as of the date it was received by the financial aid office.
Returning student loan money after 30 to 120 days
If you provide a written request for cancellation between 30 and 120 days from the date your loan money was disbursed, it is at the school’s discretion whether it processes the cancellation request.
If the school will not do so, then you are responsible for returning the money directly to the loan servicer. In that case, you will need to contact the Direct Loan Servicing Center. You can find the phone number and address in your loan correspondence.
Regardless of your situation, give your financial aid office a call first to be sure you are clear on what needs to be done and by what date you need to do it by. After providing your written request for cancellation, look for the return receipt in the mail. Once you receive that, follow up with the financial aid office to see where things stand.
All is not lost if you miss the 120 day deadline. While you won’t be able to return your student loan, you can absolutely pay it back. Simply send unused funds to your student loan servicer the same way you would any other student loan payment.
However, you will still have to pay fees and any interest that has accumulated up to that point. Still, returning money you really don’t need could save you hundreds of dollars in interest over the life of the loan.
What can happen if you borrowed too much is that it will show up as a credit in your student loan account. This amount will then be sent to you at the end of the semester in the form of a student loan refund check. You have the option of returning this money to the Department of Education, which would lower your student loan debt. There should be instructions included on how to return these funds if you choose to do so.
Though it is possible to return federal student loan money you do not need, you’ll be much better served by avoiding such a situation in the first place. Here’s how to borrow the correct amount the first time.
Do the math
- How much money are you receiving from other sources?
Be sure to include scholarships, grants, income from work-study programs, contributions from your parents, your own savings and earnings from part-time or summer jobs.
- How much is your cost of living?
This total should include tuition, room and board, transportation and books and supplies. If you’re living off-campus, room and board refers to rent and a minimal food allowance. Any additional expenses are not the kind of things you should be spending student loan money on anyway. Exceptions may be money needed for tutoring, a software program needed for school or disability-related expenses.
- How much do you need to borrow?
Subtract your estimated cost of living from the amount you are receiving from other funding sources. You don’t need to borrow any more than that.
Choose an affordable school
If you have yet to enroll, look closely at the cost of attendance for the schools you are considering. If your top choice is going to cost you tens of thousands of dollars more than your second or third preference, consider going with one of the cheaper options.
The Financial Aid Shopping Sheet makes this process much easier. Participating schools use this sheet to notify students of financial aid offers made after the submission of FAFSA. The universal format makes it easy to compare schools by:
- Cost of attendance
- Grants and scholarships
- Net costs
- Work-study options
- Student loan options
- Suggested family contribution
- Graduation rate
- Loan default rate
- Median borrowing amount
If you do not receive the Financial Aid Shopping Sheet from a school that you are considering, request one.
If you have more student loan money than you need, you’ll have no trouble finding a place to spend it. What’s tougher is returning that student loan money and challenging yourself to live like a student. The “frugal you” with money in the bank 10 years from now will thank you for the lesson.
Sarah Li Cain contributed to this report.
Need a student loan?Here are our top student loan lenders of 2021!
|1.04% – 11.98%1||Undergraduate, Graduate, and Parents|
|1.13% – 11.23%*,2||Undergraduate, Graduate, and Parents|
|3.84% – 9.40%3||Undergraduate and Graduate|
|1.05% – 11.44%4||Undergraduate and Graduate|
|1.22% – 11.66%5||Undergraduate and Graduate|
|2.76% – 7.14%6||Undergraduate and Graduate|
|1.24% – 11.99%7||Undergraduate and Graduate|
|* 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. |
1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
Information advertised valid as of 4/22/2021. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for Earnest.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.22% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.12% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.29% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.22% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 4/1/2021. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org)..
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
Undergraduate Rate Disclosure: Variable interest rates range from 2.76% – 7.14% (2.76% – 7.14% APR). Fixed interest rates range from 3.01% – 7.50% (3.01% – 7.50% APR).
Graduate Rate Disclosure: Variable interest rates range from 2.19% – 6.73% (2.19% – 6.73% APR). Fixed interest rates range from 2.89% – 7.09% (2.89%-7.09% APR).
Business/Law Rate Disclosure: Variable interest rates range from 1.36% – 9.54% (1.36% – 8.82% APR). Fixed interest rates range from 4.13% – 9.84% (4.13% – 9.12% APR).
Medical/Dental Rate Disclosure: Variable interest rates range from 1.36% – 8.34% (1.36% – 8.04% APR). Fixed interest rates range from 4.03% – 8.64% (4.03% – 8.34% APR).
Parent Loan Rate Disclosure: Variable interest rates range from 2.10% – 7.41% (2.10%-7.41% APR). Fixed interest rates range from 4.69% – 7.83% (4.69% – 7.83% APR).
Bar Study Rate Disclosure: Variable interest rates range from 4.45% – 9.60% (4.45% – 9.53% APR). Fixed interest rates range from 7.39% – 12.94% (7.38% – 12.81% APR).
Medical Residency Rate Disclosure: Variable interest rates range from 3.55% – 7.05% (3.55% – 6.77% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.07% APR).
Variable Rate Disclosure: Variable Rates are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of March 1, 2021, the one-month LIBOR rate is 0.11%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates require a 5-year repayment term, immediate repayment, a graduate degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Eligibility Criteria: Applicants must be a U.S. citizen, permanent resident, or eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For applicants who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at any time. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/Promissory Note, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank participating school.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7 Important Disclosures for Discover.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.