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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.
Bethy Hardeman 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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