January 30th, 2013

The Do’s and Don’ts of Spending Your Student Loan Cash

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The Do's and Don'ts of Spending Your Student Loan Cash

This week on Facebook we shared the following question from our Credit Advice Center:

“Should I pay off my entire credit card balance with student loans?”

This one spurred a lot of conversation on our Facebook wall, and it got me thinking – What should and can you do with student loan money? Let’s take a look.

The Do’s and Don’ts of Spending Student Loan Cash

For federal student loans, this guide gives a handy description of the kinds of purchases you can make with your student loan cash:

“You may use the money you receive only to pay for education expenses at the school that awarded you your loan. Education expenses include such school charges as tuition, room and board, fees, books, supplies, equipment, dependent child care expenses, transportation, and rental or purchase or a personal computer.”

The problem with this description is that a lot of things could be construed as “education expenses” when you really start justifying purchases. Your student loan lender won’t require that you keep track of and report on your expenses, so here’s a handy guide—based on my research—that tells you what you should and shouldn’t spend your student loan money on.

Green Light: Spend Your Student Loan!

  • Tuition & fees – This is essentially paying for your degree, which is what a loan is primarily for.
  • Rent or on-campus living costs – Stick to a reasonable living situation. And don’t spend that money on expensive furniture to fill your new digs. A pre-furnished dorm room will do just fine.
  • A campus meal plan – You have to eat, right? But keep it on campus; your overall food cost will be greatly reduced than if you took the cash to the grocery store.
  • Textbooks for classes – No, you don’t need an iPad to store all of your e-textbooks, even if it does make your backpack lighter.
  • Transportation (to and from school) – This doesn’t mean a free pass to use your student loans to get a new car. Think about it – you’ll be paying interest on that new car for years to come.

DON’T Throw Caution to the Wind

What shouldn’t you spend your student loan money on? Pretty much everything else, to be honest. I hate to be a buzz kill, but the reality is that most people are still paying off student loans well into their retirement years. Credit Karma’s latest data shows that consumers ages 65 and above still have more than $32,000 on average in student loan debt.

When it comes to spending student loan money on non-school related expenses, Suzanna de Baca put it well in her TIME article: “These students will be paying high interest rates for purchases they probably won’t even remember in five years.” In other words, think twice before you spend your student loan cash—you might regret it years from now.

Student Loans Can Haunt You Forever

I’m not intentionally trying to scare you here, but it’s important to know the ramifications of not paying back your student loans. If you’ve racked up more federal student loan debt because of extraneous expenses and can’t pay it back, your wages could be garnished and you won’t be able to discharge the debts in bankruptcy. (Read more in How Student Loan Delinquency Affects Your Credit.)

Bottom Line: Your student loan is meant to help you pay for your education while you’re a student. You don’t want to be paying off a habit of partying years after you’re out of school.


is the Social Media Manager and Writer at Credit Karma, where she’s been since February 2011. When she’s not writing about credit and finance all over the web, you can find her playing her guitar, catching the latest movie, training for her next race or just exploring the city of San Francisco. Say “Hi” on Twitter: @bhardeman.

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  1. In my experience with Federal student loans, they are dispersed directly to the school, and you don’t get the option to spend them on anything else.

    Katherine at 9:54 am on January 31, 2013
  2. Katherine, student loans are dispersed directly to the school, but the school cuts students a check for the refund rather than returning it directly to the student loan agency. A lot of students depend on this money for books, supplies, and living expenses.

    Unfortunately, I do know several people who have (and will likely continue) to use that money for non-school related expenses. It’s an incredible way to pile on the debt.

    Dona Collins at 12:31 pm on February 1, 2013
  3. I feel like if you have the opportunity to take more in loans to pay more in personal expenses you should take it. Obviously, within reason. But if you can avoid having to work while in college and you manage to increase your GPA / more contacts (including drinking with classmates) who can help get you a job in the future then it’s worth it. In college I remember I might spend $10-30 a night out drinking my face off. Say I did that 100 times that’s an extra $3k tops in loans. Say I worked a $10/hour job 10 hours a week for 40 extra weeks. An extra $4k.

    That’s pennies compared to the amount you would be making if you get a good job out of college instead of sitting at home for 6 months doing nothing. Not only that but you can deduct the student loan interest well better thing to have for young kids than high interest credit card debt. College is an investment in yourself and kids need to treat it that way. Just try to live within reason and focus on your investment by making sure you can get a job when you’re done and everything will work out fine.

    Shaun at 12:31 pm on February 1, 2013
  4. Bethy,
    I wish so many of my friends had read this in college. It’s a real shame how so many of them mismanaged their loan money.

    There’s an easy fix for those who want to spend money on things that aren’t on your list: get a job. That’ll provide extra money for drinks…er…a retirement fund.

    -Christian L. @ Smart Military Money

    Christian L. at 1:23 pm on February 1, 2013
  5. this was/is extremely helpful. I was nervous I couldn’t use my loans for food or helping with living and your site is really the only one that explains it in plain English. Thank you!!

    sarahBeara at 5:14 pm on November 5, 2013
  6. Hello,

    This page was very helpful to me. Thankfully enough I’ve never had to use student loans before but now that I’m going into grad school, and have to quit my two jobs, I’m going to need them to cover my expenses while I can find a job in the area.

    I have a question though. I have my own car, I don’t owe it but it needs fixing. Can I use my student loan to fix my car?


    Amarys at 8:04 am on July 5, 2015
  7. Enola Guerrero

    Hi Amarys – Great Question! Please go to our advice center for your concern: https://www.creditkarma.com/all/advice


    Enola Guerrero at 10:22 am on July 6, 2015
  8. The part about bankruptcy is a bit misleading. Under certain situations you absolutely can get student loans completely or partially discharged in bankruptcy court; further, the courts are now being more lenient in their interpretation of the law in their jurisprudence. Granted, there must be provable hardship that will continue for years to come and you must prove good faith to pay off the loans before going to court, but for certain people it’s a viable option. But, to outright state that you can never get student loans, federal or private, discharged in bankruptcy court is both verifiably false and disingenuous.

    bla60ah at 3:20 pm on February 16, 2016

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