Can You Use FAFSA Money to Buy a Car?
Understand how federal student aid can or cannot be used for a car purchase and its financial implications.
The Free Application for Federal Student Aid (FAFSA) helps individuals seeking financial assistance to pursue higher education. This application helps determine eligibility for various forms of student financial aid provided by the federal government, states, and educational institutions. Its purpose is to help students manage the substantial costs of college or career school.
Understanding Financial Aid and Eligible Costs
The FAFSA assesses a student’s financial need and eligibility for federal grants, loans, and work-study programs. Educational institutions use FAFSA information to calculate a student’s “Cost of Attendance” (COA), which is an estimate of the total expenses for one academic year. This figure typically includes direct costs like tuition and fees, along with indirect expenses such as room and board, books and supplies, transportation, and personal expenses.
Transportation is a recognized COA component, generally intended to cover routine travel expenses. These expenses include commuting costs, public transit fares, gasoline, or vehicle maintenance. Federal student aid regulations state this allowance does not include purchasing a vehicle. Therefore, direct use of these funds for a car purchase is not the intended purpose.
Car Purchases and Your Financial Aid Package
Federal student aid funds are not directly intended for the purchase of a car. Instead, a student might use these funds indirectly. After a student’s total financial aid (grants, scholarships, and loan disbursements) is applied to institutional charges like tuition and fees, any remaining balance is typically disbursed to the student. This excess aid is then available to cover other COA-related expenses, including transportation or personal expenses.
This disbursed amount does not function as a car loan or dedicated car-purchase fund. If a student uses these excess funds for a car, it is often from the loan portion of their financial aid package. Any federal student loan funds, such as Direct Subsidized or Unsubsidized Loans, must be repaid with interest. For instance, the federal undergraduate loan interest rate for new loans disbursed between July 1, 2025, and June 30, 2026, is 6.39%.
Receiving and Managing Your Aid
Schools typically disburse financial aid by first applying funds directly to institutional charges like tuition, fees, and on-campus housing. If total aid exceeds these charges, the remaining balance is refunded directly to the student. Refunds are commonly issued via direct deposit or check. Disbursements typically begin about ten days before each semester, providing funds for initial expenses.
Once disbursed, students assume full responsibility for managing funds. Prioritize essential educational and living expenses like books, supplies, housing, and food, before considering discretionary purchases such as a vehicle. Students should develop a budget to ensure proper allocation of funds throughout the academic term. Any loan funds utilized, even for a car, remain subject to repayment obligations regardless of academic performance or asset ownership.