It’s that time of the year when students start to receive their financial aid refunds. This typically occurs when students have either secured enough money through grants and scholarships to cover their tuition and fees, or they have borrowed more student loan money than they actually needed. If you fall into the second category, don’t rush out and spend that money just yet. Unlike the money you may have received from a scholarship or grant, your student loan money will eventually need to be paid back. I know it can be tempting to splurge a little, especially if you have been strapped for cash the last few weeks, but trust me when I say you’ll regret it after graduation. Why? Student loans carry substantial principal and interest payments which can come back to haunt you later if you’re not careful and don’t budget accordingly. If you find you have a little extra money coming back to you this semester, here are few do’s and don’ts to consider when deciding how to spend your student loan money.
Do use your money to…
- Purchase food for your dorm or apartment.
- Pay housing or rental fees.
- Cover your books and supplies for the semester.
- Pay for transportation or vehicle maintenance.
- Cover your utilities and other necessary living expenses.
- Pay tuition and fees for the summer semester.
Don’t use it to pay for…
- A weekend getaway to Las Vegas.
- Drinks for everyone at the club.
- The new spring collection at Forever 21.
- Pizza for the entire dormitory.
- Black lighting and a disco ball in your dorm room.
- Concert tickets to your favorite bands.
- Spring Break in Cancun.
It’s never a wise idea to use your student loan money to cover items that aren’t necessary for your education or daily living expenses. Why pay for a gym membership when you can use the campus facilities for free? There’s no need to purchase cable or satellite television, or splurge on the newest MacBook Pro, when there are more practical alternatives. Set a budget for yourself and stick to it. Any additional funds you may have can be saved for future semesters, or you can start making payments on your current loans. You can even have the financial office reduce your loan if you know you won’t need the entire amount.
Some expenses may seem trivial, but they do add up. For instance, if you spend $40 a week on fast food, over the course of four years that could add up to around $2,000. With a student loan interest rate of 6.8%, you’ll end up paying an additional $750 over the term of your loan (based on a 10-year repayment term). If you extend your payments at any time, you’ll be paying even more. Be smart and follow these two simple guidelines: borrow only what you absolutely need, and restrict your spending to “needs” and not “wants.” If you don’t, you could be graduating with a lot more than just your college degree.