Can You Use Student Loans for Living Expenses?

Student loans assist individuals in pursuing higher education, primarily covering costs associated with college or career school enrollment. Students often wonder if these loans can cover daily living expenses beyond tuition and fees.

Understanding Allowable Expenses

Student loans cover education-related costs, including living expenses necessary for attendance. Institutions determine these allowable expenses as part of the “Cost of Attendance” (COA).

The COA includes both direct educational costs and indirect living expenses. Direct costs are billed by the college, such as tuition, mandatory fees, and on-campus room and board. Indirect costs, though not paid directly to the school, are factored into the COA. These include housing, food, transportation, books, supplies, and personal items. An allowance for dependent care can also be included.

Each educational institution establishes the specific components and amounts within the COA. Estimates for these categories vary based on factors like living on campus, off campus, or commuting from home. This ensures the COA provides a realistic estimate of a student’s total financial outlay.

How Loan Funds Are Provided

Student loan funds are disbursed through a specific process designed to ensure that educational costs are covered first. The funds, whether federal or private, are sent directly to the student’s school. The school then applies these funds to cover direct educational charges, such as tuition, fees, and on-campus room and board expenses.

After the institution has covered these charges, any remaining balance from the loan is then disbursed to the student. This refund is provided through methods like direct deposit to a bank account or a physical check. Disbursements occur in installments, often once per academic term or semester, and are timed to align with the start of classes. Students receive a notification in writing about the disbursement details before the funds are released.

How Loan Amounts Are Determined

The amount of student loan funding a student can receive is primarily determined by the institution’s Cost of Attendance (COA). This figure represents the estimated total cost for a student to attend for an academic year.

The maximum loan amount a student can borrow is calculated by taking the COA and subtracting any other financial aid received, such as grants or scholarships. The school communicates this eligible amount to both federal and private lenders. Federal student loans also have annual and aggregate borrowing limits that vary based on the student’s dependency status and academic year.

For instance, dependent undergraduates may have annual limits ranging from $5,500 to $7,500, while independent undergraduates may have higher limits, such as $9,500 to $12,500. Private student loan limits are often capped at the COA minus other aid, but also consider factors such as the borrower’s creditworthiness and whether a co-signer is involved. While federal loans usually do not require a credit check, private lenders often assess credit history to determine eligibility and interest rates. Some private lenders may offer aggregate limits for undergraduate students ranging from $75,000 to $120,000, and higher for graduate students, which include both federal and private loan debt.

Responsible Use of Loan Funds

Once student loan funds are disbursed and any remaining balance is provided to the student, responsible management of these funds becomes important. These funds are borrowed money and will need to be repaid with interest, making mindful spending a consideration. A practical step involves creating a budget to track income and expenses.

Budgeting helps students prioritize needs, such as rent, utilities, groceries, and transportation, over discretionary spending. Tools like spreadsheets, budgeting apps, or even a simple notebook can assist in monitoring where money is spent. Understanding the long-term implications of borrowing, such as interest accrual and repayment obligations, is also a part of responsible use.

Interest on unsubsidized federal loans and private loans generally begins to accrue immediately upon disbursement, even while the student is still in school. This means the total amount to be repaid will increase over time. Payments typically begin after graduation, leaving school, or dropping below half-time enrollment, often after a grace period of about six months. Borrowing only what is truly necessary for educational and essential living costs can help minimize the total debt burden.