Can you use your student loans for living expenses?

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There are a few certainties in life: death, taxes, and the fact that the cost of a college education continues to rise.

Data from the National Center for Education Statistics indicates that in 2019-20, the average total cost of attendance for full-time, on-campus living undergraduate students at private four-year institutions was $53,200; in private non-profit institutions it was $35,100 and for public institutions the cost was $25,500.

As a result, the country’s student debt is staggering: 43.2 million student borrowers are in debt an average of $39,351 each. Statistics show that nationally, 43% of college students report having student debt and 65% of graduates report having student debt, reports Eduation.org. The same report indicates that 52% of students who had taken out a student loan felt that it was not worth it.

With so many Americans in deep debt and regretting it, it’s worth taking the time to consider whether there’s a more affordable way to pay for college. And what exactly do student loans cover? It is understood that students use them to pay for tuition, textbooks and other school supplies. But can you use student loans for living expenses and other non-school expenses? And should you?

Select spoke with financial experts to get the full scoop.

How student loans are distributed

When applying for student loans, you can choose to apply for federal loans or private loans. When you apply for either type of loan and are approved, there is a payment process. Typically, your lender will allocate the funds to cover your school’s tuition and fees (usually through the financial aid office). After your college expenses are paid, the financial aid office will send you the remaining balance to spend on expenses such as living expenses, food, books, or personal expenses.

In general, student loans are disbursed twice, in two annual installments, one per semester.

“Once the money hits your account, you’re responsible for how you use it,” says Leslie Tayne, a student loan debt attorney.

What you can use your student loan funds for

Here are typical expenses students need to cover that you can pay with student loans:

1. Tuition and Fees

According to Collegedata.com, for the 2020-21 academic year, the average tuition and fee price is:

  • $37,650 in private colleges
  • $10,560 at public colleges (in-state residents)
  • $27,020 in public colleges (out-of-state residents)

2. Room and board

Prices vary by school and city, but Collegedata.com reports that for the 2020-21 academic year, average room and board costs are

  • $13,120 in private colleges
  • $11,620 in public colleges

3. Books, laptop and supplies

The College Board reports that the annual cost of books and supplies for a public four-year college is about $1,300. Costs are probably a bit higher at private colleges.

4. Personal expenses

These can include your cell phone bill, tutoring services, laundry, club fees, internet, transportation, streaming fees, and all other entertainment.

Should you use the funds for living expenses?

Students can certainly use student loan funds to cover living expenses, says John Li, co-founder of Fig Loans, because they are part of the school attendance equation. “You need to be able to get to school from living nearby, pay essential bills and have transportation available to you,” he says.

To maximize the use of tuition, textbooks, and other school uses, Li recommends that students find the cheapest living options possible while they are in school to minimize the need to maximize their loans. “Having a few roommates can save you thousands of dollars a year. And while budgeting may seem foreign to young people in the real world for the first time, it becomes all too real once you work full time and try to make your monthly loan payments,” he adds.

Just because you can use student loan funds to cover your living expenses doesn’t mean you should, Tayne says. “The cost of attending your classes is high on its own, so when you add funding for your living expenses on top of that, debt can pile up quickly,” she says.

However, using student loan money to pay for day-to-day expenses may be better than using a credit card, she argues, because the interest rate is often lower. “If you can cover at least some of those costs in cash, you’ll be in better shape financially when you graduate,” Tayne continues.

Consider working part-time or finding freelance work here and there to reduce the amount you need to borrow, she says. “Remember, every dollar you borrow now has to be repaid in the future,” Tayne says.

What should you not spend the funds on?

“You shouldn’t use your student loans to pay for trips, parties, or concert tickets,” Li says. “That said, most lenders won’t watch your spending. carefully about whether the money spent on fun is worth paying it back in full plus interest for the next few years after graduation.”

Consider a 0% APR credit card for a laptop, textbooks and more

Some students might benefit from using a credit card with a 0% upfront APR to pay for expensive purchases like a laptop or textbooks.

“Taking advantage of introductory offers, such as 0% interest rates, is one way to use credit as a financial tool,” says Rod Griffin, senior director of education and consumer advocacy at Experian. .

But as with any credit decision, it’s important to understand the terms you’re agreeing to. These so-called “hook rates” typically expire after a specified period of time, Griffin says.

“When using an introductory rate offer, it’s critical that you have a plan to pay off the card before you have to pay interest,” he explains.

With the right plan in place, using a credit card to cover expenses you know you can repay can be a helpful way to build credit and lower the student loan bill you may have when you get your degree, Griffin said.

There’s another benefit to using credit cards responsibly: it can help students build their credit history for future purchases like a car or mortgage.

There are a number of student credit cards that offer a 0% upfront APR, including Discover it® Student Cash Back and Bank of America® Student Travel Rewards. If you need a longer introductory period, consider the US Bank Visa Platinum card.

Discover it® Student Cash Back

On Discover’s secure site

  • Awards

    Earn 5% cash back on your everyday purchases at different places every quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay with PayPal, up to the quarterly maximum when you activate. Plus, automatically earn unlimited 1% cash back on all other purchases.

  • welcome bonus

    Discover will match any Cash Back you have earned at the end of your first year

  • Annual subscription

  • Introduction AVR

    0% for 6 months on purchases

  • Regular APR

  • Balance Transfer Fee

    3% initial balance transfer fee, up to 5% fee on future balance transfers (see terms)*

  • Foreign transaction fees

  • Credit needed

Bank of America® Travel Rewards for Students Credit Card

  • Awards

    1.5 unlimited points for every dollar spent on all purchases

  • welcome bonus

    25,000 bonus points after spending at least $1,000 on purchases within the first 90 days of account opening, which can be redeemed for a $250 statement credit for qualifying travel purchases

  • Annual subscription

  • Introduction AVR

    0% APR for the first 12 billing cycles on purchases

  • Regular APR

    13.99% to 23.99% variable

  • Balance Transfer Fee

    Either $10 or 3%, whichever is greater

  • Foreign transaction fees

  • Credit needed

U.S. Bank Visa® Platinum Card

On the secure site of US Bank

  • Awards

  • welcome bonus

  • Annual subscription

  • Introduction AVR

    0% for the first 20 billing cycles on balance transfers and purchases*

  • Regular APR

    14.49% – 24.49% (variable)*

  • Balance Transfer Fee

    Either 3% of the amount of each transfer or $5 minimum, whichever is greater

  • Foreign transaction fees

  • Credit needed

Many students love a pros and cons checklist to help them make decisions.

If you’re having trouble deciding whether to take out more loans so you can cover your living expenses, Tayne recommends making a pros and cons list.

Benefits of using student loans to cover living expenses include:

  • Likely cheaper than using a credit card due to lower interest rates
  • Financing is easy to get, even with bad credit
  • One-time funding for school and personal costs

Disadvantages of using student loans to cover living expenses include:

  • Increase in student loan balance which will increase due to compound interest
  • The temptation to blow your budget and spend on non-essentials

At the end of the line

When you take out a student loan, the money is yours and you can use it for your educational needs. Once your tuition, room, and board are covered, it’s up to you to decide how to spend them. However, since you must repay these funds with interest, experts recommend that you be careful in your spending choices.

They suggest you live with a roommate, get a part-time job, and look for other ways to pay for expenses like a 0% APR credit card. The expert consensus is to be wise in your spending decisions so that you don’t get overwhelmed with paying off a lot of debt after you finish school.

For Discover it® Student Cash Back pricing and fees, click here

Information about Bank of America® Student Travel Rewards was independently collected by Select and was not reviewed or provided by the card issuer prior to publication.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

About Judith J. George

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