When you take out a private student loan, it can be tempting to spend the money on what you want. But it’s important to remember that money isn’t a bargain, and your lender isn’t giving you a blank check.
You can usually borrow up to tuition, less other financial aid, and the lender will set rules for how you can spend the money you borrow. Typically, you can use private student loans for education and living expenses. Here’s an overview of what falls into these categories and what you should be spending your private student loans on.
What should you spend your private student loans on?
Each private lender has their own rules for how you can use the loan funds, so check your loan documents or contact your lender for more details. Borrowers can generally use private student loans to pay for education and living expenses, which can include:
- Tuition fees: Private student loans are typically used to pay for tuition, which is the base cost of enrolling in courses. This is usually your biggest education expense.
- Costs: Your school may charge academic fees associated with your study program or institutional fees that cover things like school parking and use of campus facilities. Your loans can cover these costs.
- Room and board: Private student loans can pay for living expenses and meals while you are enrolled in school. These can include on-campus housing, such as a dorm and meal plan, or off-campus housing expenses like an apartment, utilities, and weekly groceries.
- Books and supplies: Student loans also cover things you need for classes, including textbooks and supplies like pens, notebooks, and backpacks.
- Transport: While you can use private loans to pay for tuition – like gasoline, parking passes, bus passes, and road tolls – you can’t buy a car with your funds. ready.
- Equipment: If you need equipment to participate in your classes, such as a laptop, software, or a camera, you can use your loans to cover the costs.
- Child care costs: You may be able to use private student loans to pay for child or adult care costs while you attend class.
What you shouldn’t spend your private loans on
When you take out a private student loan, you usually sign a loan agreement that includes wording that says what you can and cannot spend your private loans for. Pay attention to this information, as you could face serious consequences if your lender finds out that you have abused the student loan. For example, the lender may terminate your current loan, ask you to pay off the loan balance immediately, and prevent you from borrowing in the future.
You won’t have to send receipts to your lender or show how you used your private student loan funds. But even if you get away with the loan to splurge, it is not a good idea as you will eventually have to make monthly payments. And those fancy dinners, trips, and brand new cell phones will cost more when you pay off the loan, thanks to the compound interest.
Here is a list of things you might be allowed to buy with a private student loan, depending on your lender and contract, but you generally shouldn’t spend your loan money on:
- Entertainment: Your loan funds weren’t meant to pay for things like concert tickets, streaming services, and movie passes.
- Non-essential: Some examples include high-end clothing, gym memberships, and a new TV.
- To travel: You shouldn’t be using private student loans to pay for vacation, like a spring break trip, but you may be able to use the money to pay for an accredited study abroad program. Contact the lender and ask for details.
- Dining out: You can use your private student loans to pay for meal plans or weekly groceries, but it’s not a good idea to regularly use the money for restaurants or take out.
- Other debts : Don’t use your private student loan to pay off other balances like credit cards and car loans.
- Emergency fund: In general, it’s a good idea to keep three to six months of spending in savings. But your private student loans are meant to cover education and living expenses, not your emergency fund.
How to Manage Your Private Student Loan Expenses
With private student loans, the goal is to borrow as little as possible, since every dollar you buy will incur interest charges. Here are some ways to control your spending and lower your post-graduation loan payments:
- Create a budget. Knowing how you’ll be using your loan funds can help you borrow only what you need and keep interest charges low. Your school should tell you how much tuition, fees, and books cost, and you can make a list of your planned living expenses. These may include the cost of accommodation, transportation, food, a cell phone plan and personal necessities. Then figure out how much you need to borrow after you factor in scholarships, grants, savings, and part-time job money, if any.
- Find ways to cut back. Once you’ve created a budget, look for ways to save money. For example, you may decide to ride a bike instead of driving to class, working out at the school gymnasium, using your student card to get discounts, and finding free entertainment on the campus. campus. Another way to save money is to rent or buy used textbooks.
- Separate the funds. Keeping the loan money in its own account can help ensure that the funds are used only as intended. If the money is mixed with your regular bank account, it’s easier to spend it on non-essential things.
- Find ways to use the remaining funds. If you have money left over after paying for education and living expenses, ask the lender if you can repay the remaining funds or cancel part of the loan. If this option is not available or if you are past the deadline, use the money to make a payment on your student loan balance. You can also keep the money and use it for expenses for the next school term.
- Find a part-time job. Rather than borrowing money to cover all of your expenses while in school, consider finding a part-time job or starting a side business. You could earn enough to cover all of your living expenses and save your student loans for things like tuition, fees, and books.
- Save money for school. If school is still a few months or years away, consider setting some money aside now to cover some of your expenses later. This might be a good option if you want to reduce the amount you borrow but can’t work while you’re enrolled in class.
- Limit the amount you borrow. Based on your program of study, find out how much you could earn after you graduate. Then use that information to predict how much you can afford to borrow, based on your monthly student loan payments. An online student loan calculator can help you estimate this cost.