How to Spend Your Student Loans: Do’s and Dont’s
Several years ago, a fellow college grad mentioned how she was over $100,000 in debt from school. It surprised me because I didn’t recall tuition being that expensive at our in-state college at the time. “Well, I used the money for my living expenses, too,” she explained. Then I remembered the studio apartment she rented during senior year and her insistence on eating organic food. And it all made sense.
Looking back, this probably wasn’t the best use of the funds. Just because a lender (or a group of lenders) gives you a six-figure loan doesn’t mean you have to spend all of it.
In general, colleges first apply a student’s federal student loan towards tuition, room and board. Money left over gets sent to the borrower by check, cash or a direct deposit to a bank account. Private student loans typically get disbursed in a similar fashion, although in some cases, depending on the loan, borrowers may receive all the money up front in their bank account.
Suddenly, a college student who’s used to never having any money in her bank account, feels rich! My friend’s student loan deposits in her bank account may have given her an inflated sense of what she could “afford.”
But, as tempting as it may be to use some of that money to buy a new fall jacket or live off campus without roommates, be careful. Your graduated self, a few years down the road, will thank you for practicing some self-control and putting those student loan dollars to more responsible use.