Posted September 26, 2017
Refunds are great, but not when you have to pay it back with interest. The financial aid money left over after all tuition and room and board expenses have been paid is generally given directly to the student. It is called a refund because the additional loan money is not needed for billed school expenses and is “refunded” to the student. In cases where a student has received a full-ride scholarship, this refund could contain some grant money (money that is not required to be repaid). What you decide to do with the refunded money can have a lasting impact on your financial future.
Pay rent up front
Student refunds only come once per term, so you’ll need to make it last. This requires a great amount of discipline and planning to make sure you don’t run out of money before the end of the semester. A great way to cover your bases is to pre-pay your rent for the semester. By covering the full amount early, it will prevent you from spending the money on something else. It’s easy to forget what the money is for when it sits in an account with the rest of your money. Getting rent out of the way from the start will give you peace of mind and you won’t miss a payment.
Paying back the extra
Costs for textbooks and equipment required for classes are generally considered part of the total cost of attendance when a financial aid package is offered. Money from student loan refunds is intended to cover these costs as well as some living expenses. Once the required expenses are paid, paying the extra money back towards your loan balances will minimize the amount of interest paid on your student loans. Because it’s called a refund, it may feel like free money to spend; however, it may not be wise to blow the money on impulse buys. In doing so, you’ll end up paying interest on every one of those purchases until you’ve paid back the loan money you used.
Keep some money in savings
Whatever your stage of life, having some money in a savings account is a good idea. It will be helpful for emergencies or unexpected expenses in addition to providing you with peace of mind. College expenses can be hard to anticipate, so it’s good to have something to fall back on. Additionally, student loan interest rates tend to be lower than standard personal loans and you usually don’t have to start payments on them right away. If you don’t have anything in a savings account already, putting a portion of your student refund into a savings account can create a much needed cushion. Just remember, you’re paying interest on this money the longer you have it, so only keep what you reasonably need for a rainy day.