How to Take Out a Student Loan for Living Expenses

Navigating higher education involves more than tuition. Student loans can help manage daily living expenses. The Cost of Attendance (COA) for a college includes housing, food, and other personal necessities. Understanding how to access and manage these funds is important for college financial planning.

Understanding Student Loan Options for Living Expenses

Students have two primary avenues for securing loans to cover living expenses: federal and private. Each type has distinct characteristics and eligibility criteria. Federal student loans, provided by the U.S. Department of Education, typically offer more favorable terms and borrower protections.

Direct Subsidized and Unsubsidized Loans are common federal options for living costs. Subsidized Loans are for undergraduates with financial need; the government pays interest while the student is in school, during grace periods, and deferment. Unsubsidized Loans are for all students, regardless of need, but the borrower is responsible for all accrued interest. Direct PLUS Loans can also cover remaining COA for graduate students and parents of undergraduates.

Federal loans are integrated into a school’s Cost of Attendance (COA), a comprehensive budget including tuition, fees, and allowances for living expenses like housing, food, transportation, books, and personal expenses. These loans feature fixed interest rates and offer income-driven repayment plans, which adjust monthly payments based on income and family size, and provide options for deferment or forbearance.

Private student loans originate from banks, credit unions, and other private lenders. They cover living expenses as part of the COA but differ significantly from federal loans. Private loans typically have variable interest rates, leading to unpredictable monthly payments. Eligibility often requires a credit check and frequently a co-signer for approval or better terms. Unlike federal loans, private loans generally lack borrower protections like income-driven repayment plans, deferment, or loan forgiveness.

Navigating the Application Process

Securing student loans for living expenses begins with the application process, which differs for federal and private loans. The Free Application for Federal Student Aid (FAFSA) is the gateway to federal student aid. Completing the FAFSA is a crucial first step for financial assistance.

To start the FAFSA, students create a Federal Student Aid (FSA) ID for accessing and signing the form. Applicants gather essential financial documents: Social Security numbers, prior year tax returns, bank account records, and investment information. Dependent students also need their parents’ financial information.

The FAFSA is completed online at studentaid.gov. After submission, a FAFSA Submission Summary is generated, summarizing information and indicating the Student Aid Index (SAI), which colleges use to determine financial need. Schools listed on the FAFSA receive this information and send financial aid offers detailing eligible aid. Students accept federal loan awards through their college’s financial aid portal.

Applying for private student loans involves a separate process, as these loans are obtained directly from individual lenders. Students should research and compare offers from various banks, credit unions, and online lenders. The application requires personal information, school details, and the requested loan amount.

Lenders conduct a credit check; a strong credit history is generally needed for approval. Many undergraduate students may need a co-signer to qualify or receive a lower interest rate. The co-signer shares responsibility for repayment. Review interest rates, repayment terms, and associated fees before committing to a private student loan.

Receiving and Managing Loan Funds

Once student loans are approved, understanding how funds are disbursed and managed for living expenses is important. Student loan funds, federal or private, are sent directly to the college or university. The school first applies the loan amount to cover direct educational charges, such as tuition, mandatory fees, and on-campus room and board.

After institutional charges are paid, any remaining balance is refunded directly to the student. This refunded amount covers indirect educational expenses, including off-campus housing, groceries, utilities, transportation, books, and personal necessities. Loan disbursements typically occur in installments at the beginning of each academic term. First-time federal loan borrowers may have a 30-day waiting period after enrollment begins before funds are disbursed.

The Cost of Attendance (COA) is a comprehensive budget established by each school, representing the total estimated cost of attending for one academic year. Student loans, federal and private, are capped at the school’s determined COA, meaning students cannot borrow more than this total amount minus any other financial aid received.

Managing refunded loan funds is essential for covering living expenses. Creating a detailed budget for monthly expenses, including rent, utilities, groceries, and transportation, helps ensure funds last. Students should prioritize essential needs over discretionary spending, recognizing that borrowed money must be repaid with interest. Responsible borrowing means taking out only the amount truly needed, avoiding over-borrowing to minimize future debt.