Can I Take Out Student Loans for Living Expenses?

Student loans can cover living expenses beyond tuition fees while pursuing an education. The cost of college involves more than academic charges. Borrowing limits and eligible expenses are based on an institution’s Cost of Attendance (COA). Understanding COA components is essential for financial planning.

Defining Eligible Living Expenses and Loan Amounts

Eligible living expenses for student loans are determined by a college or university’s Cost of Attendance (COA). The COA is an estimate of a student’s annual cost to attend an institution. It includes direct educational costs and indirect living expenses beyond tuition and fees.

Common categories of expenses factored into the COA include:
Housing (on-campus or off-campus rent and utilities).
Food (meal plans or groceries).
Transportation (commuting or travel).
Personal necessities (toiletries, laundry).
Books, course materials, supplies, and equipment.

Student loan amounts are capped at the institution’s calculated COA, minus any other financial aid received. Grants or scholarships reduce maximum loan eligibility. Students cannot borrow more than this net amount, even if actual expenses exceed the COA. Institutions set their COA within federal guidelines, reflecting regional living costs and institutional charges.

Types of Student Loans and Eligibility

Students seeking to cover living expenses have two main types of loans: federal student loans and private student loans. Federal student loans are provided by the U.S. Department of Education and offer various benefits not found with private options. Eligibility for federal loans requires completing the Free Application for Federal Student Aid (FAFSA), enrollment at an eligible educational institution, and maintaining satisfactory academic progress.

Federal loan programs, such as Direct Subsidized and Unsubsidized Loans, require U.S. citizens or eligible non-citizens as borrowers. The specific type of federal loan impacts interest accrual and repayment options. Direct Subsidized Loans are awarded based on financial need, with the government paying interest while the student is in school at least half-time.

Private student loans are offered by banks, credit unions, and other private lenders. Eligibility depends on the borrower’s creditworthiness and income, or that of a co-signer. Many undergraduates require a creditworthy co-signer due to limited credit history. Private loans have fewer borrower protections than federal loans, and their interest rates vary based on market conditions and credit profile.

The Application and Disbursement Process

Applying for student loans to cover living expenses involves distinct steps for federal and private options. For federal student loans, after FAFSA submission, the financial aid office reviews information and determines eligibility. The school then issues a financial aid offer, outlining eligible federal loans and other aid.

Once the student accepts federal loans, they complete entrance counseling and sign a Master Promissory Note (MPN). The MPN is a legal document promising repayment to the U.S. Department of Education. Students accept loan offers annually; a new MPN may not be required if one is on file.

Loan funds are first sent to the institution, not directly to the student. The school applies funds to cover tuition, fees, and other direct educational charges. Any remaining balance is then released to the student. This balance, intended for living expenses, is disbursed in installments at the start of each semester or academic term. Private loan disbursement varies by lender but often follows a similar pattern, with funds sent to the school first before any excess is released to the borrower.

Managing Your Student Loans

Effective financial planning requires understanding how student loans are managed after disbursement. Once loan funds are disbursed, interest begins to accrue on unsubsidized federal loans and all private loans while in school. For Direct Subsidized Loans, the government pays the interest while the student is enrolled at least half-time, during the grace period, and during periods of deferment.

After a student graduates, leaves school, or drops below half-time enrollment, a grace period begins before repayment. For federal student loans, this grace period is six months, providing a transition before monthly payments are due. Interest continues to accrue on unsubsidized federal and all private loans during this time. At the end of the grace period, loans enter repayment.

Student loan accounts are managed by loan servicers, contracted by the U.S. Department of Education or private lenders to handle billing, payments, and customer service. The loan servicer is the primary contact for borrowers regarding loan balances, payment due dates, and repayment options. While repayment plans vary, the obligation to repay the principal plus accrued interest begins after the grace period.