What Can You Use Student Loans For? Dos and Don’ts

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What Can You Use Student Loans For

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For many college students, student loans are a necessity to help cover the cost of college. Research indicates there are 44.7 million Americans with student loan debt.

But college students who take out loans might not yet feel comfortable managing money. So when they ask “what can you use student loans for” and find out that the answer is, “Pretty much anything,” they may make unnecessary purchases.

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

Do: Spend student loans on education expenses

The Office of Federal Student Aid states that all student loan funds must be used for education expenses. These can include:

  • Tuition and fees
  • Room and board
  • Textbooks
  • A computer
  • Supplies and equipment necessary for study
  • Transportation to and from school
  • Child care expenses

Nobody will watch your bank account to ensure you’re spending your loans on education expenses. But before you make a purchase using student loan funds, ask yourself if you truly need it in order to get through school and graduate. You must have a place to live, food to eat and a way to get to school; but you don’t need to spend an inordinate amount on entertainment, meals out and trips with friends.

Don’t: Spend student loans on nonessentials expenses

While it’s healthy to spend student loan money on living expenses, there are other expenses that, if you use student loans for them, mean you could be making poor financial decisions.

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

  • Travel
  • Clothes
  • Eating out for every meal
  • A down payment on a home
  • Business expenses

You might be tempted by your peers to spend your student loan money on some of these expenses. A Student Loan Hero survey found that 20% of students use their student loan funds for travel and 26% use them for clothes. Only 10% use student loan funds just for tuition.

Spending on nonessentials is a financially risky move. Living costs are better covered through other means such as a part-time or summer job, if possible. You might also be able to find grants for living expenses while in college. Otherwise, you may have to take out more student loans than you truly need, making them more difficult and costly to repay in the future.

Poor spending could put you behind on your finances

Bad spending habits when you’re living off student loans can hurt you in the long run. Some students feel excited at their bank account balances after they receive their student loans. It could be seductive to think you can spend the money now on fun expenses, such as trips or dinners out, and repay it after you graduate.

But it’s an expensive way to fund your vacations and nights out. You’ll need to pay interest on your student loans, and the longer it takes to repay your loans the more interest you’ll pay over time.

Instead, focus on paying back your student loans as quickly as your budget will allow. That means you can spend the money you’ve saved on interest on fun expenses.

Resist the urge to use student loans for emergency expenses

Another common scenario is using student loan money to fund emergency expenses. Say you decide to pay for car repairs with student loans. That’s risky, because you’ll have to pay back that money in the future, and you might have to take out more loans to pay for education costs in the meantime.

Even if you work part-time and plan to use that income to pay for school, there’s a possibility you could lose your job — which could require taking out more student loans, or even dropping out or taking a break from school.

Avoid a situation like this by saving in an emergency fund, and working to rebuild it after you’ve used it. An emergency fund is simply a savings account that’s available to you if unexpected expenses arise. It can help you avoid using student loans or a credit card for these expenses, and then paying back that amount with interest.

Do: Make a budget

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. That means tracking your expenses, setting limits on what you’ll shell out in certain categories, and recalibrating your spending plan when necessary. If you can, find a part-time or summer job to cover noneducation expenses, and look for ways to cut spending where possible.

It’s also smart to keep your student loan money in a bank account that’s separate from your general checking account. The need to request a transfer from one account to the other can build in time. That lets you decide if the purchase you’re considering is the best use of student loan money.

Like any debt, the main goal when taking out student loans is to use as little as possible. The more you use loans for non-education expenses, the more you may have to pay back. Resisting the urge to splurge means giving yourself more financial freedom in the future.

Jolene Latimer contributed to this report.