Can You Take Out Student Loans for Living Expenses?

Student loans are a common financial tool for individuals pursuing higher education, helping to bridge the gap between personal savings, grants, and the overall cost of attending college. These loans are designed to cover more than just tuition and fees; they aim to support students with comprehensive expenses. Understanding their full scope is important for financial planning, as student loans can indeed serve this purpose for living costs.

What Student Loans Cover for Living Expenses

Student loans help cover a student’s full Cost of Attendance (COA), an estimate determined by each educational institution. The COA extends beyond tuition and fees to encompass various other expenses a student incurs throughout an academic year. The COA serves as the maximum amount of financial aid, including student loans, a student can receive.

Common categories of living expenses factored into the COA include:
Housing costs (on-campus dormitories or off-campus rent and utilities).
Food (meal plans or groceries).
Books, supplies, and equipment necessary for coursework (e.g., a laptop).
Transportation expenses (commuting or travel).
Personal expenses (toiletries, laundry, and entertainment).

While the COA sets the overall borrowing limit, it is an estimated budget. Specific items and amounts can vary by institution and are often adjusted annually. Students should consult their school’s financial aid office for their personalized COA, especially if their living situation differs from a typical student.

Sources of Student Loans for Living Expenses

Students have primary avenues for securing loans to cover their living expenses: federal student loans and private student loans. Each type offers distinct characteristics and benefits.

Federal student loans, provided by the U.S. Department of Education, are generally considered the first choice due to their borrower protections and favorable terms. These include Direct Subsidized Loans, available to undergraduate students with demonstrated financial need, and Direct Unsubsidized Loans, which are open to both undergraduate and graduate students regardless of financial need. There are also Direct PLUS Loans, accessible to graduate or professional students and parents of undergraduate students. These federal options typically feature fixed interest rates, income-driven repayment plans, and may offer deferment or forbearance options, contributing to their flexibility.

Private student loans are offered by banks, credit unions, and other financial institutions. While they can also be used to cover living expenses, their terms and conditions can differ significantly from federal loans. Private loans often require a credit check and may necessitate a co-signer, especially for students with limited credit history. Interest rates on private loans can be fixed or variable, and they may not offer the same extensive repayment flexibilities as federal loans.

The application process for federal loans begins with the Free Application for Federal Student Aid (FAFSA®) form, which determines eligibility for various federal aid programs. For private loans, students apply directly to individual lenders, who evaluate applications based on their criteria. In both cases, the approved loan amount is typically capped by the institution’s certified Cost of Attendance, ensuring funds are aligned with educational and living expenses.

Receiving and Using Your Loan Funds

Once approved, loan funds are typically disbursed to the educational institution first. The school applies these funds to cover direct institutional charges, such as tuition, fees, and any on-campus housing or meal plan costs. This ensures primary educational expenses are settled directly with the institution.

Any remaining balance from the disbursed loan funds, after institutional charges have been covered, is then refunded directly to the student. This refund is typically provided through direct deposit into the student’s bank account, a physical check, or sometimes via a school-issued card. Loan disbursements usually occur at the beginning of each academic term. Students should confirm the specific disbursement schedule with their school’s financial aid office, as timing can vary.

The funds received by the student are intended for legitimate educational and living expenses within the Cost of Attendance. Students must budget and manage these funds responsibly, as they are borrowed money that must be repaid with interest. Using loan funds for non-essential items or purposes unrelated to education can lead to unnecessary debt and increased financial burden after graduation. Students should strive to borrow only what is necessary to cover their costs, as minimizing debt can significantly impact future financial well-being.