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What do student loans cover?

December 05, 2018

When you receive a student loan, whether from the federal government or a private lender, you are not obligated to show proof of how you spent the money.  Student loan disbursements are typically sent directly to your school, which withholds part of the amount to cover tuition. The remainder is paid by the school directly to you. It is your responsibility to spend the funds wisely, which means devoting the entirety of the money to education-related purposes.  While your bank account may seem flush with cash after receiving a student loan disbursement, it is crucial to remember that you have to pay it all back - with interest!

“We gain the strength of the temptation we resist.” - Ralph Waldo Emerson

Valid Education-Related Expenses

College comes with myriad temptations, many of them financially costly.  Spring break vacations to exotic locations, dinners at fancy restaurants, spa days, expensive shopping trips...the list goes on.  Student loans are not meant to finance extravagant or luxurious lifestyles. The types of expenses that student loans are intended to cover are relatively few.  In fact, there are just five legitimate categories:

  • Tuition and fees: The cost of tuition, and any student activity fees, is likely your largest education-related expense.  Depending on where you go to school, this cost can vary widely. Tuition at a private university can be up to ten times higher than the cost of attending a state school or community college.

  • Housing expenses: Whether you live in a dormitory on campus or rent a private apartment off campus, your cost of housing is valid education-related expense.  In addition, if you pay any utility bills, those are also considered as valid costs pertaining to your education. However, just because you may have the cash, doesn’t mean you should rent, or lavishly decorate, a luxury apartment.  Aim for accommodations that are comfortable yet modest and affordable. Depending on where you go to school, the cost of housing can vary significantly.

  • Transportation: If you live off campus, you will need to commute to school.  Transportation expenses, such as the cost of a vehicle (if absolutely necessary), gas, vehicle maintenance expenses, parking passes, and public transit fares, are all valid education-related expenses.  If you attend college far from home, flights home for the holidays are also valid travel expenses. However, just like with your choice of living accommodations, choosing a low-cost form of transportation is key.  Riding a bicycle, carpooling, and taking public transportation are all viable alternatives to keeping a car on campus.

  • Meals: We aren’t talking about $4 lattes or sushi dinners at delectable Japanese restaurants.  However, school-sponsored meal plans are considered valid education-related expenses. Most colleges offer a variety of flexible meal plan options to fit your eating habits and budget.  Whether you commute to school or live on campus, sign up for a meal plan that works for you - and stick to it.

  • Textbooks and school supplies: The costs associated with buying textbooks and other school supplies, such as a computer, are valid education-related expenses.  However, be careful, because these costs can add up fast. While it is important to equip yourself with the basic materials and supplies necessary to perform your studies, you can also take steps to minimize this expense.  Whenever possible, buy used textbooks or ask your professor if an earlier edition of the required textbook (which is usually cheaper) is an acceptable substitute. When purchasing a computer, opt for a refurbished model.

Tax Credits & Deductions

Need further incentive to spend your student loan money wisely?  While you are not legally required to spend student loan proceeds on education-related expenses, the IRS will reward you with education credits and tax breaks if you do.  Save those receipts!

Word from the Wise

College is expensive.  Make sure to choose a college that you can afford, and be smart with those student loan dollars.  You are going to need them.