Most student loan borrowers receive a student loan refund check before the beginning of every semester. The check represents the amount left over after the school has taken out what is owed for tuition, fees, and room and board (if applicable). Check amounts can range from a few hundred to several thousand dollars, depending on each students unique situation.
If you (or your child) are about to receive a student loan refund check, here are five things to consider before spending the money.
It is not ‘free money’- It may seem like an effortless, easy windfall, especially to a starving college student. But it is not. You will be paying it back long after it (and whatever you buy with it) is gone, so avoid the temptation to spend freely on bar tabs, exotic travel and that tricked out new game system.
You are legally bound to use it for education related expenses- When you signed your FSFSA application and student loan promissory notes, you agreed to spend your loan money only for education- related expenses. Any other use of the funds is considered a violation. Should the student aid office get wind of it, they are required to report it to the Office of the Inspector General at the Department of Education.
You will probably need it later- While it may seem boring to save the money to use for groceries, books and supplies throughout the semester, it is the right thing to do. After all, do you really want to eat beans and rice every night for days at a time? ( Living expenses such as food and transportation are approved uses of student loan funds).
Consider giving it back- This one might be the last thing you think when you receive your check. But if you really don’t need it, don’t keep it. Returning it will lower the total amount of student loan debt you eventually need to pay back. It won’t be very much fun now, but your future self will thank you. Instructions for returning the money should be included with the check.
Use it to establish good financial habits- How you spend your student loan money can be the start of your lifetime financial habits, so use it wisely. Deposit it into savings, establish a budget and only withdraw the amount you budget for each week. Starting and sticking to these habits is a priceless lesson no amount of schooling can teach.