How to use student loans for living expenses (if you must)

Living expenses like meals and utilities don’t go away while you attend college. Many people rely on student loans to cover living expenses, but doing so can carry long-term financial consequences. It’s better to approach your personal and academic finances using a combination of savings, financial aid and wage income (if you plan to work while studying).

Can you use student loans for living expenses?

If you live on campus, your student loans can help cover living expenses up to your school’s cost of attendance (COA). As long as you are enrolled at least half-time, you can also use the funds to pay for living expenses off campus, including:

• Rent.
• Transportation (gas, parking fees, bus fare, etc.)
• Meals and groceries.
• Housing utilities and supplies.
• Home furnishings.
• Dependent care.
• Disability-related expenses (documentation guidelines apply).

After student loans are applied to the balance due from your college or university, any leftover balance is returned to you directly. These funds can then be used for anything related to the cost of attending school, including the expenses listed above.

While there is some flexibility around what you can use student loans for, remember that the money is borrowed and you will be charged interest.

What is cost of attendance?

A college’s cost of attendance (COA) is the estimated cumulative cost to attend school, often calculated by term or academic year. This estimate includes tuition, fees, room and board, and is adjusted for the cost of living where your school is located. Your school’s COA determines the maximum amount you can borrow in student loans.

Can I use my student loan for non-essentials?

While your student aid office and lender aren’t regulating every line item of where you spend your loans, you may face consequences if they discover that you’ve used your loans for unnecessary purchases.

Nonessential purchases could include paying for a new car, vacation travel, high-end restaurant meals or meal deliveries, clothing or entertainment like concert tickets or gaming systems. A good rule of thumb is that your wants and luxuries are not likely to be covered by financial aid.

Misusing your loan funds could result in consequences, including:

• Your loan balance being immediately due in full.
• Lenders denying you future loans.

Though it’s relatively uncommon, misusing your student aid could even result in being convicted of a crime: financial aid fraud. Penalties may include wage garnishment by the IRS, fines up to $20,000 or up to five years’ imprisonment.

Limiting your borrowing and use of student loans is also important because there are limits to how much you can borrow. Federal loans and many private lenders have lifetime limits in place. You cannot borrow more once you’ve maxed out your loan allowance.

Before spending any student loan funds on nonessential expenses, remember there could be an impact on your long-term financial health. You will owe this money back plus interest after finishing school. Even if you encounter financial hardship and need to file for bankruptcy, student loans are rarely discharged in bankruptcy.

Be smart if you use your student loans for living expenses

If you want to save money on living expenses while minimizing future regrets, consider these tips:

• Cover your must-have needs first: Your tuition, fees and major expenses, including living arrangements, should get the bulk of your student loan money. Build a student budget to understand your actual costs.
• Look for less-expensive alternatives: Even if you need to buy something for school, you’re not obligated to buy the most expensive option. When it comes to textbooks and technology, see if you can buy a less-expensive or older version, look for something secondhand, investigate renting and borrowing options or consider splitting the cost with a friend.
• Crunch the numbers on housing options: You may be required to live in an on-campus dorm for your first year of school, but after that, you may be better off renting an off-campus apartment. Choosing off-campus housing without an expensive meal plan could save you money.
• Spend only what you need: Any loan money you use on living expenses will come with an extra charge in the form of interest. Calculate your student loan interest to understand what this spending will cost you.

Alternatives to using student loans for your living expenses

While student loans can be a lifeline for covering costs, they are not the only option for funding your education, nor are they the most cost-effective. If you can manage to work while in school, or earn scholarship or grant funding, these options won’t require repayment in the future.

Work-study, for example, is a form of federally-granted financial aid that allows students to work part-time through your institution. Though hours are typically limited even during academic breaks, these jobs can ensure a regular paycheck to support living expenses while in school.

Bottom line

While you can use student loans for living expenses, be cautious about how you spend your money. Your loans can cover a lot of things, but not everything. Don’t spend more than you need because you’ll have to pay back anything you borrow. You can apply for scholarships and grants to access free money for school that doesn’t have strings attached.