Can I Use Student Loans to Buy a Car?

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Mark Kantrowitz

By Mark Kantrowitz

March 29, 2021

You can use student loans to pay for a college’s cost of attendance, and the cost of attendance includes transportation, so can you use student loans to buy a car?

You cannot use student loans to buy a car.

If you live off campus, having a car may be a necessity, but the college doesn’t require it. Some colleges even ban students from having a car on campus because they need to prioritize limited parking for faculty and staff. You also can’t pay for the purchase of a car with financial aid funds.

In particular, a qualified education loan is used solely to pay for qualified higher education expenses, which are limited to the cost of attendance as determined by the college or university. 

Although the law defines the cost of attendance as including an allowance for transportation costs, the intention is to cover the incremental costs of traveling from home to school and back, not the cost of purchasing a car.

The U.S. Department of Education has given guidance to college financial aid administrators that prohibits the inclusion of the cost of a car in the college’s cost of attendance. Chapter 2 of Volume 3 of the Federal Student Aid Handbook, a nearly 1,500-page tome published for college financial aid administrators by the U.S. Department of Education, states:

“This allowance may also include costs for operating and maintaining a vehicle that is used to transport the student to and from school, but not for the purchase of a vehicle.”

That means unfortunately you can’t use student loans to buy a car., no matter what type of student loan you have. Many colleges base the allowance for transportation on the distance between the student’s home and school. The distance is then multiplied by the IRS mileage reimbursement rate, which is 57.5 cents per mile in 2020, assuming one round-trip per day.

If the student lives close to public transportation, the financial aid office might base the allowance on the cost of a bus or subway pass. Some colleges even negotiate a discount on bus or subway passes with the local municipality.

Many colleges have free shuttle busses that help students get around on and near campus. This is especially common at colleges with large, sprawling campuses.

The transportation allowance is likely to be much lower than the cost of a taxi, Uber or Lyft.

A good place to start:

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