For many college students, student loans are a necessity to help cover the cost of college. In fact, according to the Pew Research Center, about four in ten adults under age 30 have student loan debt.
If you’re heading to college next year with the help of a student loan, you may be wondering, “What can I spend student loans on?” While there are no strict guidelines in place, there are some do’s and don’ts when it comes to spending your loan money. Just remember: the more you spend, the more you have to pay back.
What can I pay for with my loan money?
Student loans are designed to cover costs required for attending school — including tuition, housing, meals, and books, says Joe Statuto, market relationship manager for Wells Fargo Education Financial Services. Loan money isn’t for late-night pizza runs, a new smartphone, or a spring break vacation.
“Federal and private loan funds can be used for qualified educational expenses included in their college’s Cost of Attendance (COA),” says Statuto. Check out your school’s financial aid site to see what the COA is, or give the financial aid office a call.
If you’re getting loan money refunded to you at the end of the year, you might be borrowing more than you really need. Consider turning the money back in to your lender or taking out a smaller loan next year. “Loan money isn’t free money,” says Statuto. “You actually have to pay it back — with interest.”
As with all debt, only take on as much as you can reasonably afford. A good rule of thumb: When you add up your college loans, they shouldn’t be more than the amount of money you expect to earn your first year out of college. “That amount of debt should leave you with reasonable monthly payments you’ll be done with in about 10 years,” says Statuto.