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:
- 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.
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 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.
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
|3.69% – 10.94%1||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|3.97% – 12.97%3||Undergraduate and Graduate||Visit Ascent|
|4.34% – 12.99%2||Undergraduate and Graduate||Visit Discover|
|4.12% – 10.98%*,4||Undergraduate and Graduate||Visit SallieMae|
|5.03% – 11.23%5||Undergraduate and Graduate||Visit PNC|
|4.00% – 13.00%6||Undergraduate and Graduate||Visit SunTrust|
|4.72% – 9.81%7||Undergraduate and Graduate||Visit LendKey|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents||Visit CommonBond|
|4.19% – 12.06%9||Undergraduate, Graduate, and Parents||Visit Citizens|