Can You Use Student Loans for Other Things?
Understand what you can legitimately use student loan money for beyond tuition, and the consequences of misusing funds.
Student loans are a common financial tool designed to help individuals pursue higher education. Their primary purpose is to provide financial assistance for the expenses directly related to attending a college or university. These funds bridge the gap between a student’s personal resources and the overall cost of their academic pursuits.
Allowable Educational and Living Expenses
Student loan funds are intended to cover what financial aid offices define as the “Cost of Attendance” (COA). This comprehensive estimate includes both direct and indirect expenses a student typically incurs during an academic year. The COA extends beyond tuition and fees, encompassing necessities for successful study. Schools calculate the COA, which influences the maximum loan amount a student can borrow.
Direct costs within the COA often include tuition charged by the institution and any mandatory fees associated with enrollment. If a student lives on campus, room and board expenses, such as dorm fees and meal plans, are also considered direct costs. These amounts are typically disbursed directly to the school.
Beyond direct charges, student loans can address various indirect expenses. Housing costs, whether for on-campus lodging or off-campus rent and utilities, are generally allowable. This includes expenses like electricity, gas, and internet services. Groceries and meal expenses also fall under permissible uses.
Students can use loan funds for essential academic materials, such as textbooks, course materials, and required supplies. Technology directly supporting academic work, such as a computer, is also an allowable expense. Transportation costs related to attending school, including bus passes, train tickets, or gas for commuting, are permissible.
Personal expenses necessary for daily living during the academic period are also covered. This can include toiletries, laundry, and other miscellaneous costs. Dependent care expenses, such as childcare, may also be included in the COA if approved by the financial aid office. Professional expenses, like testing or licensing fees required for a student’s program, can also be covered.
Non-Allowable Uses and Potential Consequences
While student loans offer flexibility for educational and living expenses, certain uses are explicitly prohibited. Funds are not intended for luxury items or non-educational purchases, such as high-end electronics not required for coursework, designer clothing, or extensive entertainment. Using loan money for vacations, gambling, or other discretionary spending not tied to educational pursuits is also inappropriate.
Student loans cannot be used to pay off other existing debts, such as credit card balances, car loans, or mortgage payments unrelated to student housing. Investing borrowed funds in stocks, real estate, or starting a business is not permitted, as these activities fall outside the scope of qualified educational expenses. Such misuses violate the terms of the loan agreement.
Misusing student loan funds can result in severe financial and academic consequences. Lenders may demand immediate repayment of the misused amount, or even the entire loan balance. Failure to comply can lead to default, severely damaging the borrower’s credit score. A damaged credit history can make it challenging to obtain future loans, rent housing, or secure employment.
Beyond financial penalties, students risk losing eligibility for future federal financial aid, including grants and scholarships. The educational institution may also impose disciplinary actions, such as academic suspension or expulsion, if the misuse violates their financial aid policies. In extreme cases, intentionally misusing student loan money for non-educational purposes can be considered fraud, potentially leading to legal action, including fines or imprisonment.
Misused funds could also have tax implications. If student loan funds are not used for qualified education expenses, the IRS may consider the misused portion taxable income. This could result in unexpected tax liabilities and penalties. While lenders may not always closely monitor every expenditure, the borrower remains accountable for ensuring funds are used appropriately.