The Dos and Don’ts of Spending Your Student Loan Money

What can I spend student loans on?

For many college students, student loans are a necessity to help cover the cost of college. Over the last decade, tuition and fees for higher education have increased by 3.5 percent annually.

But college students taking out loans might not know how to manage money well. So, when they wonder, “What can I spend student loans on?” and find out that the answer is, “Pretty much anything,” they’re liable to make unnecessary purchases.

Here’s a look at what you should and should not buy with your loans.

Do spend student loans on education expenses

The Office of Federal Student Aid states, “All loan funds must be used for your education expenses.” The Higher Education Act of 1965 lists eligible expenses for student loans, including:

  • Tuition and fees
  • Room and board
  • Textbooks and supplies
  • Transportation to and from school

But, nobody is watching your bank account to ensure you’re spending your loans on education expenses.

Of course, the government does investigate fraud cases on occasion. In one case, a couple took on 27 identities to take out hundreds of thousands of dollars worth of student loans. They used the money for gambling and other personal expenses.

It’s hard to say how much students on average use their student loans for non-education expenses. But, it’s safe to say that some students dip into student loans to cover other costs.

Don’t spend student loans on these things

The question, “What can I spend student loans on?” is a dangerous one. With the loan money in your bank account, you might be tempted into spending the money on other things, like a shopping spree.

In general, avoid paying for anything that isn’t related to your education, such as:

  • Travel
  • Clothes
  • Eating out
  • A down payment
  • Business expenses

How poor spending puts you behind in your finances

Poor spending habits when you’re living off student loans can hurt you in the long run. It can also leave you questioning your decisions later in life.

When I was in college, I made the mistake of using some of my student loan money to fund a couple of vacations with my wife. Between the two trips – a cruise to the Bahamas and an excursion to Disneyland – we spent around $3,000.

For the most part, I was spending money wisely while in school. In fact, I almost avoided student loans altogether. But once we had to take out loans for school, the balance in our student loan account was tantalizing.

My wife, the more level-headed member in our marriage, tried to talk me out of spending the money. But I eventually won her over.

Years later, we both have fond memories of the two trips and experiences we had. We wish, however, that we had waited until we had enough income to fund our trips, rather than tapping into debt.

Since we graduated, we’ve paid roughly $270 in interest on the loan we used for the trips. We also still owe a little less than $2,000.

Why you should resist the urge to spend even in emergencies

Ten years ago, Jaryd Shulsen was using student loans to get a private pilot’s license. Before he finished the program, his car broke down, and he used his remaining loan money to cover the repairs.

His plan was to use money earned from his job at FedEx to finish his license, but he was unexpectedly let go.

“I came up a handful of flights short and was left to pay off my [student loan] debt with almost nothing to show for it,” Shulsen said. “I never got my license and those flight hours have since expired.”

The 28-year-old is now a chief traffic controller for the Navy, and he regrets his poor spending. But looking back, he likely wouldn’t change a thing.

“I’m happy about who I’ve become and where I’m at in life,” said Shulsen. “Things happen for a reason, and I know what a blessing the Navy has been for me.” He also noted that he would never have considered signing with the Navy if none of this had happened.

Of course, Shulsen can’t convert life lessons learned into hard cash. He still makes payments on his student loans, despite not having earned his pilot license. He has two years left until his loans are paid in full.

Don’t ask, ‘What can I spend student loans on?’

Can you use student loan money for anything? Sure, but a more important question is what you should be spending it on. To curb spending on unnecessary purchases, come up with a game plan to ensure you’re spending money wisely throughout the school year.

Create a budget to help keep your regular monthly spending in check. If you can, find a part-time job to cover non-education expenses.

Keep your student loan money in a separate bank account where you don’t have immediate access. Having this buffer can give you time before making a spending decision you might regret.

Like any debt, the main goal when taking out student loans is to use them as little as possible. The more you use them for non-education expenses, the longer you’ll be paying them back.

So, learn from the mistakes of others. Create a plan to lower your dependence on debt and resist the urge to splurge. That way, you’ll have more financial freedom later in life.

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