This might have happened to you: A month or two into the semester, your school’s financial aid office contacts you saying you have a student loan refund check to pick up. While this might sound like free money, it’s not. And it can dig you into more student debt than necessary.
What is a student loan refund?
A student loan refund is the money that’s left over from your student loans after covering tuition and fees. It’s meant to help you pay for miscellaneous education-related costs, like textbooks, housing and other living expenses.
Why is there money left over?
Many student loan providers allow you to apply for up to 100% of your school-certified cost of attendance (COA). This includes those extra living expenses you might not have the money to cover as a full-time student.
How COA affects your refund
According to federal law, you can’t receive financial aid worth more than the COA — including scholarships, grants, work-study and student loans. So, your refund might be limited by what the school thinks you need. Each school’s financial aid office has a different way of determining the COA and it typically varies from year to year.
How do I get a student loan refund?
Typically, you can pick up a student loan refund check from your school’s financial aid office. It should contact you to tell you how much you have available and ask you whether you’d like to keep it or return it to the Department of Education or your private lender.
You can also check your account before the financial aid office reaches out. If you have a negative balance, this means your school will contact you about issuing a refund soon.
If you decide to pick up your refund check, your financial aid office typically gives you instructions on when and where to pick it up. You can then deposit it into your personal checking or savings account.
You may also be able to get a myFSApay account. But it’s in its pilot stage, and only available to students of five universities until December 2020.
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If you’ve maxed out your federal student loans, a private student loan could bridge your financing gap.
It depends on when your student loans are disbursed — which, in turn, depends on when you applied for a student loan. If your school receives your student loans at the beginning of the semester, your refund should be available shortly after.
But if you apply for financial aid after the semester begins, it could take until the middle or even the end of the semester to get your refund. Contact your school’s financial aid office to get an estimate of when your refund might be ready.
Can I get a cash advance on a student loan refund?
It’s possible. Some schools like Harvard offer cash advances on student loan refunds as long as you apply for student loans and registered for classes well before the semester begins.
Depending on your year in school and when you start, you could get a refund advance to cover the full academic year or individual semesters. Reach out to your financial aid department to find out if they offer advances.
How to request an early disbursement on federal loans
If you have federal loans coming in — or any other federal aid — you can also request to have your money disbursed up to 10 days before classes or the pay period begins. This will make your refund available earlier in the semester.
Each school might have a different process for early disbursement. You can request it by calling, emailing or visiting your school’s financial aid office before the semester is due to start and after you’ve submitted your financial aid application. You might have to go in to fill out and sign an early disbursement form.
What can I do with a student loan refund?
Student loan refunds are meant to cover educational expenses that you can’t afford. If you get a student loan refund, you might want to use it in one of the following ways:
Return it. Don’t need extra money to float you through the academic year? Tell your financial aid office in writing that you don’t want it and it’ll send it back to the Department of Education or your private lender, saving you potentially thousands of dollars in student loans.
Buy or rent textbooks. Textbooks aren’t cheap. A student loan refund can help you buy or rent your textbooks so you don’t have to live off ramen for the semester.
Cover rent. If your living expenses aren’t included in your school’s fees, you can use your refund to cover rent.
Buy or replace a laptop. Laptops are an expensive necessity when it comes to most college courses — and your refund can cover that cost.
Pay for transportation. You can also use your refund to get you to and from class — whether it’s buying gas, a public transportation pass or repairing your car.
There’s technically no way for the Department of Education or your private lender to enforce these guidelines, but we recommend trying to avoid:
Taking more than you need. Crunch some numbers and be realistic about your expenses and income. You can request to have some of the funds returned to your lender if you don’t think you need it all.
Treating it like free money. With the exception of subsidized federal loans, interest adds up as soon as the funds are disbursed. You’ll end up paying interest for any extra money you borrow as soon as you say yes to your refund.
Quitting your part-time job. Unless your job is getting in the way of your coursework, quitting just because you have money from student loans might be a choice you regret down the line.
Using it to pay for a big trip. Using your student loan refund to finance that spring break trip to Cancun might sound like fun, but it could come back to haunt you with unaffordably high student loan repayments.
Getting a student loan refund might feel like free money from the government or your private lender. But overborrowing will increase the total cost of your loan and can make repayments difficult to afford. Try to restrict your spending to school-related expenses and look to other sources of money like part-time work first.
It depends. If you withdraw from a class before charges are applied and it affects your tuition, then you might get a larger refund because you have more funding left over.
But beware: If you drop below what your school considers half time, you’ll have to start paying back your federal loans and most private student loans in six months.
Generally, no — though it’s not unheard of. Scholarships and grants are usually meant to cover your COA and are often refunded to the scholarship or grant program after these costs are met. In the few cases where there are funds left over, you likely won’t get as large of a refund as you’d get with a loan.
No, a student loan refund is an extension of your student loan — so it isn’t considered income. However, if you have part of your loan forgiven, canceled or discharged, you have to pay income taxes on it in most cases.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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