What can private student loans be spent on?

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When you take out private student loan, you might be tempted to spend your money on anything. But it’s important to remember that money is not a random amount, and your lender does not write you a blank check.

You can usually borrow equal to the cost of the visit minus any other financial aid, and the lender will set rules for how you can spend the money you borrowed. Generally, you can use private student loans to cover your education and living expenses. Here’s a look at what falls into these categories and where you should spend your private student loans.

What Should You Spend Private Student Loans On

Each private lender has different rules on how you can use your loan funds, so check your loan documents or contact your lender for details. Borrowers can usually use private student loans to pay for education and living expenses, which may include:

  • College Tuition Fees: Private student loans are usually used to pay for tuition, which is the base cost of enrolling in classes. This is usually your biggest educational expense.
  • Fees: Your school may charge academic fees related to your degree program, or institutional fees that cover things like school parking and use of campus premises. Your loans can cover these costs.
  • Accommodation and meals: Private student loans allow you to pay your room and board expenses while you are in school. These can include on-campus living, such as a dorm room and meal plan, or off-campus living expenses, such as an apartment, utilities, and weekly groceries.
  • Books and accessories: Student loans also cover what you need for your class, including textbooks and supplies like pens, notebooks, and backpacks.
  • Transport: While you can use private loans to pay for class commuting costs – such as gas, parking tickets, bus passes, and tolls – you cannot buy a car with your loan funds.
  • Equipment: If you need equipment for your class, such as a laptop, software, or a camera, you can use the loan to cover expenses.
  • Dependent care costs: You can use private student loans to pay for child or adult care while attending classes.

What you shouldn’t spend private loans on

When you take out a private student loan, you usually sign a loan agreement that states what you can and cannot spend the private loan on. Pay attention to this information because you could face serious consequences if your lender discovers that you have misused a student loan. For example, a lender might terminate your current loan, ask you to pay off the loan balance immediately, and block you from getting a loan in the future.

You will not need to send receipts to your lender or otherwise show how you used your private student loan funds. But even if you do manage to use a waste loan, it is not a good idea because you will eventually have to make monthly payments. And those fancy dinners, travel, and new cell phones will cost more when you pay off the loan thanks to compounding.

Below is a list of what you may be allowed to purchase with a private student loan, depending on your lender and contract, but which you generally should not spend your loan money on:

  • Entertainment: Your credit was not meant to pay for things like concert tickets, streaming services, and movie tickets.
  • Insignificant: A few examples include high-end clothing, gym membership, and a new TV.
  • Travel: You should not use private student loans to pay for vacations such as spring break travel, but you can use the money to pay for an accredited study abroad program. Contact the lender for details.
  • Dinner outside the home: You can use your private student loans to pay for meal plans or weekly groceries, but it is not advisable to regularly spend money on restaurants or takeaways.
  • Other debts: Do not use your private student loan to pay off other balances such as credit cards and car loans.
  • Emergency funds: It’s usually a good idea to save three to six months. But your private student loans are for education and living expenses, not yours emergency fund

How to manage your private student loan expenses

In the case of private student loans, the goal is to borrow as few loans as possible, as there will be an interest rate for every dollar you borrow. Here are some ways you can control your spending and reduce your loan payments after graduation:

  • Create a budget. Knowing how you will use your loan funds can help you borrow only what you need and minimize interest costs. Your school should tell you how much tuition, tuition fees and textbooks cost, and you can make a list of your expected living expenses. This may include housing, transportation, food, cell phone charges, and basic necessities. Then figure out how much you need to borrow after you report scholarships, grants, savings and money from part-time work, if applicable.
  • Find ways to cut costs. One day you create a budget, look for ways to save money. For example, you might decide to ride your bike instead of driving to class, work out at the school gym, use your student ID to get discounts, and find free activities on campus. Renting or buying used textbooks another way to save money.
  • Divide the funds. Keeping the loan in your own account can help you ensure that the funds are used only for their intended purpose. If money is mixed with your regular bank account, it is easier to spend it on irrelevant things.
  • Find ways to use your balances. If you have any money left after you have paid your education and living expenses, ask the lender if you can return the remaining funds or cancel part of the loan. If this option is not available or you missed the deadline, use the money to pay off the balance of your student loan. You can also save money and spend it on expenses in the next semester.
  • Find a part-time job. Instead of borrowing money to cover all of your expenses while in school, consider finding a part-time job or starting a part-time job. You can earn enough to cover all your living expenses and save student loans for things like tuition, fees, and textbooks.
  • Save money for school. If it’s still months or years away from school, consider setting aside money now to help cover some of your expenses later. This can be a good option if you want to reduce the amount borrowed but cannot work while enrolled in a class.
  • Limit the loan amount. Based on your educational program, find out how much you can earn after graduation. Then use this 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 value.

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