By Manuel Tovar, September 01 – Hispanic Solutions Group
Can You Use Student Loans To Cover Your Living Expenses? Faced with this question, today we give you some interesting information on behalf of our credit specialists from Hispanic Solutions Group.
Based on recent statistics, it is known that as a college student, your school’s tuition and fees are only part of your total education costs. According The College Board, living expenses, including rent, meals, and transportation, cost undergraduate students about $ 17,000 per year roughly in the years 2019-20. As is common knowledge, most students and families do not have enough money saved to pay for all their college expenses, so you may need to use federal or private student loans to cover the cost.
Can You Pay Living Expenses With Student Loans?
Tuition and fees represent only a small percentage of what you will pay for college. That is why schools show their total cost of attendance (COA): an estimate of what students spend on tuition, fees, room and board, textbooks, supplies, transportation, and other basic expenses that need to be covered as students.
How is the total cost of attendance determined?
The Total Cost of Attendance (COA) is determined by the individual school, not the federal government. The COA will vary based on the college you attend and your location. For example, a university 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 Total Cost of Attendance (COA), but many use an average of what students spend to determine the typical cost.
The Total Cost of Attendance (COA) determined by the school is generally the maximum you can receive in financial aid, including grants, scholarships, and student loans. Both the federal government and private student loan lenders use the COA to determine the maximum amount of aid.
These are the authorized uses of student loans for living expenses, which we share with you.
When you get a student loan, you must sign a loan agreement that sets out the terms of the loan, including its interest rate. In the agreement, it also lists the authorized uses of the money. In addition to tuition, the following living expenses count as authorized uses of student loans:
• Rental.Student loans can be used to pay for your home. You can use borrowed money to pay for a dorm, but you can also use student loans for off-campus living expenses, like renting an apartment with friends.
• Meals.The COA includes an allowance to cover your meals. Whether you’re enrolling in the college meal plan or buying your own food, you can use your loans to pay for your meals.
• Personal computer. You can rent or buy a personal computer with student loans to help you complete your class work.
• Supplies If you need additional supplies, such as notebooks, pens, or software, you can use your loans to purchase those supplies.
• Child or dependent care. Student loans can be used to pay for childcare, such as hiring a babysitter for when you attend classes.
• Transport. In this area, you can use your loans to pay for car maintenance, fuel, or bus and / or taxi fares.
The costs to avoid paying with student loans
You can use federal and private student loans to cover some of your costs while you are in school. However, students should be wary of the types of debt they take on for school supplies, often because federal student loans are relatively easy to obtain. You may even qualify for student loans for bad credit living expenses, since most federal loans do not require a credit check.
Borrowing when you have poor credit can be tempting. 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 fees. They are not intended for a car purchase or car loan payments.
• To travel. 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, such as spring break.
• Go out to dinner.Under the cost of attendance, the meal allowance must be a reasonable amount for a meal or grocery plan. It is not designed to cover frequent deliveries or restaurant meals.
In general, you should think of your student loans as a financing option to pay for essential expenses and the basics. You can then use your loans to cover food, housing and transportation, but at a modest and affordable level.
Why is keeping spending on student loans low key?
When you receive your financial aid award letter, you may be offered more student loans than you really need. Or you may find that you have extra money after paying your regular bills. However, you should only use the minimum necessary to pay for school due to the following reasons:
1. Reach the maximum loans
There are limits on how much you can borrow in federal student loans annually and during your lifetime. If you use more money than you need in your first year or two, you may not be able to borrow more money in your third or fourth year. If you decide to pursue a graduate degree, you may not be eligible for certain types of graduate student living expenses. Borrow the least amount necessary to ensure you have financial aid for your entire education. Otherwise, you may need to turn to private loans, which tend to have higher rates and stricter payment terms.
Using student loans for nonessential purposes can be risky. Particularly with federal student loans, taking out more than you can afford can have significant consequences if you fall behind on your payments:
• Bankruptcy liquidation is rare. With other forms of debt, such as auto loans or credit card balances, you can declare bankruptcy to eliminate your debt and start over. However, federal student loans are very difficult to pay off in bankruptcy.
• Interest. If you use student loans for luxuries, like dining at restaurants or traveling, keep in mind that you will pay 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 of dollars more than you initially borrowed.
• Wage bill. If you default on your federal student loans, your loan servicer can garnish your wages and take money directly from your paycheck.
• Treasury compensation. Federal loan servicers can also seize your tax refund through Treasury offsets.
• Bad credit: late payments and defaulting on your student loans can seriously harm your credit, making it difficult to qualify for a car loan, home mortgage, or even getting approved to lease an apartment.
How do you budget for living expenses as a college student?
It is recommended that, as a college student, it is important to develop a budget before school starts to manage your finances. To create a budget, assess how much money you have to spend on scholarships, grants, work-study programs, savings, and family contributions. Then deduct your school’s total cost of attendance. The resulting number is how much you will need to borrow in student loans.
While you can use student loans to cover your living expenses, it is wise to limit your expenses to minimize your student loan debt. Sticking to a budget while in school will make it easier to pay off your debt after graduation and help you reach your goals.
We invite you to follow our social networks: LinkendIn, Facebook, Twitter and Instagram to find more information related to finances. Also on our YouTube channel The Credit Channel to learn how to improve your credit. If you need help in repairing your credit, disputing debts that do not belong to you, or other services, call us at (612) 216-1599.