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As a student, your school’s tuition and tuition fees are only a portion of your total tuition fees. According to College Council, living expenses, including rent, meals, and transportation, cost undergraduates in 2019-20 about $ 17,000 per year, on average.
Most students and families don’t have enough money to pay for all of their college expenses, so you may have to use federal or private student loans to cover the costs instead. However, there are some important limitations and drawbacks to keep in mind before deciding to use your student loans for living expenses.
Can you afford living expenses with student loans?
Tuition and fees are only a small percentage of what you’ll pay for college. This is why schools show their Total Cost of School Attendance (COA): an estimate of what students spend on tuition, tuition, accommodation and food, books, supplies, transportation and other essential living expenses.
How the cost of participation is determined
The COA is determined by each school and not by the federal government. The COA will vary depending on the college you are attending and its location. For example, a college in New York, which has a very high cost of living, will have a higher COA than a school in Mississippi, the state with the lowest cost of living in the country.
Schools have their own formulas for calculating COA, but many use an average of what students spend to determine the typical cost.
The COA determined by the school is usually the maximum you can receive in financial aid, including grants, scholarships, and student loans. The federal government and private lenders use the COA to determine the maximum amount of your assistance.
Authorized uses of student loans for living expenses
When you take out a student loan, you must sign a loan agreement that specifies the terms of the loan, including its interest rate. In the agreement, it also lists the permitted uses of the money. In addition to tuition fees, the following living expenses are considered permitted uses of student loans:
- Rental. Student loans can be used to pay for your housing. You can use borrowed money to pay for a room in a dorm, but you can also use student loans for off-campus living expenses, like getting an apartment with friends.
- Meal. The COA includes an allowance to cover your meals. Whether you sign up for the college meal plan or buy your own groceries, you can use your loans to pay for food.
- Personal computer. You can rent or buy a personal computer with student loans to help you complete your classroom work.
- Supplies. If you need additional supplies, such as notebooks, pens, or software, you can use your loans to purchase these materials.
- Childcare or dependent care. Student loans can be used to pay for child care expenses, such as hiring a babysitter when you attend class.
- Transport. You can use your loans to pay for car maintenance, fuel, or bus and taxi costs.
Costs to avoid paying with student loans
You can use federal and private student loans to cover some of your costs while you study. However, students should be careful about the types of debt they incur for school items, often because federal student loans are relatively easy to obtain. You may even qualify for student loans for living expenses with bad credit because most federal loans do not require a credit check.
It can be tempting to take out loans when you have poor credit. But using student loans for expenses like the following can be a costly mistake:
- Buying a vehicle. While student loans can be used for transportation, the rules state that they must be used for maintenance, fuel, or fares. They are not intended to be used to buy a car or to pay off a car loan.
- Trip. You can use a portion of your loans for legitimate study abroad programs, but you should avoid using them to pay for non-essential travel, like spring break.
- Dining out. As part of the cost of attendance, the meal allowance is supposed to be a reasonable amount for a meal plan or groceries. It is not designed to cover frequent deliveries or restaurant meals.
In general, you should consider your student loans as a financing option to pay for essential expenses and the basics. You can use your loans to cover food, shelter, and transportation, but at a modest level.
Why Keeping Student Loan Spending Low
When you receive your financial aid letter, you may be offered more student loans than you actually need. Or you may find that you have extra cash after paying your regular bills. However, you should only use the minimum necessary to pay for the school for the following reasons:
1. Reach loan limits
There are limits on how much you can borrow in federal student loans each year and throughout your lifetime. If you use more money than you need in your freshman or sophomore year, you may not be able to borrow more money in your junior or senior year. If you decide to pursue higher education, you may not be eligible for certain types of graduate student loans for living expenses.
Borrow as little as you need to ensure you have financial assistance for all of your studies. Otherwise, you may need to resort to private student loans, which tend to have higher rates and more stringent repayment terms.
Using student loans for non-essential purposes can be risky. Especially with federal student loans, taking out more than you can afford can have serious consequences if you fall behind on your payments:
- Discharge from bankruptcy is rare. With other forms of debt, like auto loans or credit card balances, you can file for bankruptcy to get rid of your debt and start over. However, federal student loans are notoriously difficult to pay off in bankruptcy.
- Interest. If you’re using student loans for luxuries, like dining out or traveling, know that you’ll be paying interest on the money you borrow. Most borrowers take 10 years or more to pay off their loans, so you could end up paying thousands more than what you originally borrowed.
- Wage garnishment. If you don’t pay off your federal student loans, your loan officer can garnish your paycheck by taking money directly from your paycheck.
- Compensation from the Treasury. Federal loan managers can also enter your tax refund through Treasury offsets.
- Credit ruined: Missed payments and defaulting on your student loans can seriously damage your credit, making it difficult to qualify for a car loan, mortgage, or even approval to rent an apartment.
How to Budget for Living Expenses as a College Student
As a student, it’s important to budget before school starts to manage your finances. To create a budget, estimate how much money you have to spend on scholarships, grants, work-study programs, savings, and family contributions. Next, deduct the total cost of attending your school. The resulting number is the amount you will need to borrow in student loans.
Although you can use student loans for your living expenses, it is wise to limit your spending in order to minimize your student loan debt. Staying on a budget while in school will make it easier to pay off debt after graduation and help you reach your goals.
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