What can student loans be used for

Students Loans are very important for students who need credit to pay for your tuition fee. Here are some tips about how one should use their loan amount and other consequences if its don't used appropriately.

Updated by Theres on 28th May 2019

People with financial limitations attend college usually depending on student loans. Loans are used to pay for qualified educational expenses, student loan helps to meet the college expenses.

The qualified educational expenses include Tuition and related fees, room and board, textbooks, equipment and other related supplies, transportation, child-care and more. The student loans must be used very carefully for educational expenses and not for luxury goods.  

Table of Contents

Numbers Topics
1 Can student loan funds be used for non-educational expenses?
2 How student loan funds shouldn’t be used?
3 What would happen when you use your money for non-essentials?
4 What happens if you use student loans on something that you shouldn’t?
5 What are the costs covered by the FAFSA?
6 Distribution of student loans
7 How to be smart with your student loans?
8 Results of Misusing your Student Loans
9 Ways to minimize your loan debts
10 Wise ways to Spend Student Loan

Can student loan funds be used for non-educational expenses?

When you apply for student loans, you agree to use the amount for your education. If a certain amount of student loan is dispersed to you, then you need to pay for items such as living expenses and related school expenses.

Education cost is more than just the tuition fee that you need to pay. Mostly the expenses of the college include tuition, fees, books, supplies, room, board, transportation and other personal expenses.

The number of on-campus, off-campus commuter, in-state and out of state students is calculated by the Schools.

The unused funds are usually disbursed to the student as per the company policy. These remaining funds can then be used for living expenses, transportation, books, and supplies.

Student loans can be used for tuition, fees, on-campus room and board, off-campus housing and utilities, transportation, gas, tolls, buses, trains, books, supplies, equipment, miscellaneous personal supply, toiletries, medication, groceries, Study abroad program costs and many more.

However, it is best to not use student loan funds for non-educational expenses.

How student loan funds shouldn’t be used?

Never spend your student loan funds on luxury items such as:

  • Concert tickets

  • Netflix subscriptions

  • unwanted electronic items

  • travel

  • vacations

  • holidays

  • car

  • motorcycle or bicycle

  • delivery food

  • down payments or repairs

  • business expenses

  • debt such as personal loans

  • auto loans or credit cards

  • someone else’s education costs and more.

What would happen when you use your money for non-essentials?

If the lender finds that you have misused your student loan funds, you might face consequences. Based on your lender’s policy, the current loans and the future loan options may be terminated.

You might be asked to repay the entire amount that you have already used. Understand that you’ll have to pay your borrowed money back with interest.

Though money can be borrowed for living expenses, you should not always depend on your loan amounts during school breaks. Thus, you can make essential payments without making any more debt.

Student loans can be affected by personal circumstances. The cost of attendance can be increased by expenses such as childcare costs, personal assistance, transportation costs, equipment, supplies and more.

When money is spent on housing and food, the cost of university attendance would depend on where do you reside. You can live in a home with your parents or campus housing, an off-campus apartment or house, and more.

Reasonable expenses will be estimated for your room and board if in case you are living off-campus.

What happens if you use student loans on something that you shouldn’t?

Most families today rely on student loans to pay for college and their living expenses. It is possible that you won't be able to repay the loan amount and will be in debt.

If you use the loan amount in fulfilling your desire then you may miss paying your tuition fee and your registration can be canceled. In such situations, your loan can be canceled as the loan was not utilized appropriately. 

It would be tough to figure out, why would student loans be used, and why they aren’t able to be used. Student loans should be used for education-related expenses.

What are the costs covered by the FAFSA?

There is a general tendency that the student has to borrow more than what the COA provides to them.

The amount that is charged per credit or college account depends on the type of college that the student attends.

The cost of on-campus housing and meal plans will also be covered by student loans.

Students who live off-campus will have a portion of living expenses that are covered through student loans. Student services on campus include activities, athletics, health, counseling, health, technology, transport, student union fees and more.

As per various studies, an average of $1,298 is usually spent by students on textbooks.

They might also have to purchase supplies such as papers, notepads, writing implements, folders, and more.

Equipment that the student might need includes computers, calculators, materials for classes, microwaves, refrigerators, lamps, and other related necessities.

Students, who live off-campus, use loans to cover expenses, to and from college. Additional expenses include study abroad trip expenses, child care for dependent children, clothing and also cell phone plans.

In order, to limit the tax liability, students should borrow what is required and hence should cover the expenses related to a college education.

The expenses that are not related to your college education should not be claimed. Your financial assistance will stop if in case you have misused funds.

The money that you have already given is to be paid back.

Distribution of student loans

The money that is received in bulk, goes directly to the school to pay for tuition, fees, and housing.

The remaining funds are used for personal expenses, relevant to education. This amount is received at the beginning of a school year or semester.

However, some institutions distribute these funds in installments, to encourage more responsible spending among students.

During the making of student loan applications, you agree to pay for expenses such as living or school expenses. Because ultimately you want to pay your loans back, it is best to use your resources for something really important.

Moreover, lying on the FAFSA is a federal crime that results in fines, prison or both.

How to be smart with your student loans?

An average graduate today has $37,000 in student loan debt.

Effective management of debt would mean finding ways to be aware of how much you need to borrow. Even if you get a refund check, you’ll not have to spend it.

Instead, you can return it and lower your debt collection. You can even create a budget to keep your monthly spending in check. You can also find a part-time job to cover your non-education expenses.

You can even keep your student loan money in a separate bank in which you don’t have immediate access. This might give you time for a second thought before you spend money on something that you would later regret.

The main goal of taking student loans is to use them as little as possible. If you use them for non-education expenses, the longer you’ll be paying them back.

The allowance for each expense is determined by your school. If higher costs than specified in the allowances are documented, then an appeal can be made to the possible adjustment to the cost of attendance.

If in case you get a refund check, you’ll not have to spend it. Instead, you can return it and lower your debt obligation.

Though there are two major sources of student loans, the federal loans are widely accepted because of the amount of money available and the loan repayment programs. Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation loans are included in the William D Ford Federal Direct Loan Program.

Student loan regulations can be different and there are several types for which you are eligible. Federal loans that are given directly to students include Stafford loans and Perkins Loans. Federal loans are funded with government money and are entitled to low-interest rates and favorable repayment options.

Moreover, there is no requirement of a credit check or collateral. These loans can be consolidated upon graduation and this is an important factor when it comes to time for repayment. PLUS, Loans are also called Parent loans for undergraduate students.

How to reduce the amount of money that you are supposed to borrow?

A few of the ways to reduce the cost of college are given below.

  • Seeking admission in a less expensive school

  • Searching for more scholarships and grants

  • Reducing the amount that you need to spend

  • Looking for ways to reduce cost such as buying used books

  • Eating on campus instead of dining out

  • Working part-time can indeed increase funds for you to face college

For unsubsidized loans, you can make payments while you are still in school.

Results of Misusing your Student Loans

Refunds are most often issued directly to students. After the loan is issued by the Department of Education, it doesn't keep any record to whom it is distributed. But most schools do not actively look for misuse.

If the financial aid office of the institution finds that student loans were inappropriately used by the students, then it can be reported to the school’s Department for those funds.

Moreover, additional income will be accrued, if the financial aid office finds that the loans were misused. If the student exhausts his funds early in the semester then he would not be able to afford the many essential needs. Whether the borrower would need the entire amount cannot be factored by the current system.

When you get your financial aid award letters, you can either accept or reject portions of the loans. This will help you to assess your exact financial needs and borrow only the exact amount that you require.

If this is your first year in college, the cost of attendance can be calculated. However, you may need less money than college expenses. You can also review your previous spending to ensure that your borrowing matches your needs.

If in case parts of your federal loans are rejected, then you’ll probably get a chance to borrow, additional amounts in the academic year. You can then be sure that the money went to an appropriate purchase. The money that you pay might be borrowed back someday with interest.

Ways to minimize your loan debts

Effective ways to minimize your loan debts are given below.

  • You can make use of scholarships, grants, and work-study opportunities

  • Federal loans offer a low, fixed rate interest and if in case you qualify for need-based aid, interest wouldn’t accrue until you are done with school.

  • If annual or lifetime limits are set on federal loans, private loans can be considered as an alternative to federal PLUS Loans. Private loans can be priced with PLUS Loans and can help in funding.

  • Private loans can be priced with PLUS Loans and can be comparatively priced with PLUS Loans to fill college funding gaps.

Once a student loan refund check is received from school, the money can be deposited into your bank account. The money can then be used for things such as rent, utilities, groceries, and bills.

Wise ways to Spend Student Loan

The reason why students take student loans is to afford a college education.

An alternative is to use the student loan amount to improve your financial status. Some of the methods that can be used by students to spend student loan money are given below.

Investment – The interest rates on student loans are lower than the related interest rates. The average returns of stock-market investments are higher than in the previous years. Thus, with a lower interest rate, you can earn money by investing your loan amount.

Mutual funds and index funds are the safest ways to invest your money. Another economical way to spend student loan money is to begin a business. A business does not always mean a high-funded and expensive project. One idea is to set up a website and buy some related inventory.

Moreover, you can even start a business for about $100. If you have a mind-blowing then why prevent yourself from giving it a shot. You can even lend money to other college students.

Distributing the amount that you have received is another way to earn from what you already have. Moreover, your discretion can be used while loaning out cash as well. The preferred method of business these days are formal contract and judge of character.


  How student loan should be utilized?

 The most appropriate way to use the student loan is to spend its tuition fees and other educational expenses like the board fee, accommodation, medication, groceries, Study abroad program costs and many more.

  What will happen if I use student loans for different purposes?

If the loan is used for luxury items and fulfilling desires. Then you can miss paying your tuition fee and your registration can be canceled. Your loan can be canceled as the loan was not utilized in an appropriately. You can face legal issues.

  What if my lender founds out that the student loan amount is misused?

If the lender finds that the loan amount is misused, the borrower has to face the consequences. Based on your lender’s policy, the current loans and the future loan options can be terminated.

  Student loans can be used for other things or not?

A student loan should be used for educational expenses. If you are using your student loan funds for fulfilling other requirements then you may not be able to make all the academic payments and your name can be dropped out from the school. If the lender finds out that the loan was misused and he can break the contract and you will be left out with death.

  How to minimize the student loan amount?

For minimizing the student loan find a school with low expense, enroll for scholarships and grants, control your expenditure and can Work part-time to earn for your expenditure.

  Is student loan a good investment?

The student loans are a good investment as interest rates on student loans are lower than the related interest rates of other loans.

  What are the conditions if we lie in the FAFSA form for the student loan?

Lying on the FAFSA form is a federal crime and you may be charged as a result, or can end up in prison or both.

  Can I pay my rent with student loans?

Yes, you can pay your rent using the student loan. Department of Education of the U.S lets you use student loans for housing and living expenses if you’re studying in school.

  How to take a loan for college?

For applying first fill the FAFSA form for federal loans. Get in touch with the college's financial aid office to know about the loans provided through the college. It can also check the U.S. Department of Education to know about state loans and other loans.

  Can I return the loan which is not used?

Yes, you can pay back the loan amount which is left out. Anyway, you have to repay the loan so it is very good to practice if you are returning the left-out amount and not misusing it.