Can Student Loans Cover Living Expenses?June 16, 2021
Student loans are a beneficial resource to pay for higher education. But if you don’t have a job you may be wondering if you can use student loans to cover living expenses. The answer is often yes, but there are a few caveats to keep in mind.
When you take out student loans for school, the maximum you can borrow is based on the school’s individual cost of attendance (COA). Each school’s cost of attendance is unique and factors in certain cost of living expenses.
A school’s COA typically includes an allowance for tuition, housing, transportation, books, supplies and meals. So can student loans cover living expenses? In many cases, yes, but the amount and types of expenses will be limited by your school and student loan provider. To determine the maximum amount you can borrow in student loans, the school will calculate the COA minus any aid, such as scholarships, that you receive.
Can You Use Student Loans to Cover Living Expenses?
When borrowing student loans, the student will have to sign a document promising to repay the funds with interest. This document, known as the Master Promissory Note or Promissory Note for federal and private student loans, outlines when student loans can cover living expenses. When you think of living expenses, you may be tempted to include expenses outside of your actual needs. Here are the living expenses that can often be covered with student loans based on the promissory notes:
- Tuition and fees
- A meal plan through your school or groceries
- Supplies needed for classes
- A personal computer
- Childcare expenses for any dependents you have
- Transportation – this can include gas, parking, public transportation and transportation to and from home and school at school breaks
- Utilities for your housing – including electric, water, gas, and internet service
Expenses Not to Use Student Loans For
Although your lender may not outline exactly how student loans can be used, it is best not to spend the funds on these types of purchases:
- Optional entertainment expenses
- Non-necessity clothing
- Major purchases, like a new vehicle or a home
- Business expenses
- Technology that will not be used for school
Reasons Not to Use Student Loans to Cover Living Expenses
Whether you are borrowing federal student loans or private student loans, the loans are meant to be used for educational expenses. So using the funds on nights out with your friends or a flat-screen tv would not qualify. But that is not the only reason you should consider paying for these expenses from another source. Here are some other reasons to consider:
- Interest: You’re required to pay interest on your loans, and seemingly small expenses can add up over time.
- More to Repay: Simply put, the more you borrow, the more you’ll have to repay. It’s best to keep your expenses low and only borrow what is necessary to streamline your future student loan repayment.
- Lender Consequences: Some lenders may require full repayment of the loan for misusing funds.
Alternatives to Using Student Loans for Living Expenses
If you have to use student loans for living expenses, try reducing your expenses so you aren’t relying on your student loans so heavily. Here are a few ways to reduce your living expenses:
- Live with others. Your housing expense may be the largest outside of paying for tuition. Try reducing this expense by living with roommates.
- Get a job. Even a part-time job can help cover non-educational expenses.
- Buy used textbooks. Textbooks are another major expense while in school. Try saving on this expense by buying used or renting your books when you can.
- Use your student ID. Your student ID can help you score great discounts. Aim to save money at restaurants and stores that offer student discounts.
- Apply for scholarships. Any financial aid you receive through scholarships and grants helps reduce your reliance on student loans.
- Budget. Use your school’s cost of attendance estimates to make a budget for your living expenses.
Refinance Your Student Loans
If you wind up borrowing a significant amount of student loans for living expenses and are facing large student loan payments, consider student loan refinancing.
Refinancing your loans could help save you on interest costs if you qualify for a lower interest rate. You could also reduce your monthly student loan payments by extending your payment term when you refinance. Explore our website to learn about the benefits of refinancing student loans with ELFI.*