How to ‘Return’ Your Student Loans When You’ve Borrowed Too Much


When you’re paying for college, it feels like you can use all the help you can get.

That’s certainly the case when it comes to scholarships and grants you don’t have to pay back. But you don’t want a penny more than necessary when it comes to expensive student loans. Fortunately, if you borrow federal direct student loans you can give them back without paying interest.

How to return federal student loan money

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 the following:

Option #1
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 (the deadline depends on the specifics of your situation), your school should be able to return the money to the loan servicer for you.

Just be sure to keep a copy of the letter and send it via certified mail with return receipt. This way you have proof of the content of your request, as well as the date it was received by the financial aid office.

Option #2
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 they process the cancellation request.

If they will not do so, then you are responsible for returning the money directly to the loan servicer. In that case, contact the Direct Loan Servicing Center, the phone number and address for which you will find on 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 deadline date.

After providing your written request for cancellation, look for the return receipt in the mail. Once you receive that back, follow up with the financial aid office to see where things stand.

What you’ll actually give back

If you are able to return your loan through one of the two methods outlined above, then 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.

After 120 days

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 it into your student loan servicer the same way you would any other student loan payment.

Yes, you will still have to pay fees and whatever interest has accumulated up to that point. But returning money you really don’t need could save you hundreds of dollars in interest over the life of the loan.

How to avoid borrowing too much in the first place

Though this process is in place for returning 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?
    Include scholarships, grants, work-study programs, your parents, your own savings, and part-time or summer jobs.
  • How much is your cost of living?
    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. The only 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 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 you are considering, ask for it.

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 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.

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