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With rents around the country creeping ever higher, college students may be nervous about affording a house or apartment near their school on top of their tuition, books, and other expenses.
They may be relieved to find out that you can use student loans for housing, even off-campus housing.
In fact, students can use student loan funds for the full cost of attendance at their college or university.
What Is the Cost of Attendance?
A college’s cost of attendance (COA) includes room and board in addition to tuition and fees, books, supplies and equipment, transportation, and miscellaneous expenses.
COA is also known as the “student budget.”
Many colleges have two or more different budgets based on where the student lives:
- On campus in the college dormitories or other college-owned-or-operated housing
- In off-campus housing
- At home with parents or other relatives
- On a military base or with basic housing allowance from the military (in which case the student budget will include meal costs but not housing)
- With children or other dependents
You can use student loans for housing off campus up to the allowance specified by the college. The apartment doesn’t need to be near the college to qualify.
Managing Loan Disbursement to Pay Rent
The lender will send your student loan funds to the college, not to you directly.
The college will apply loan money and other financial aid to tuition and fees first. If you’re living in a dorm or other college housing, they will apply the money to room and board next.
If a credit balance remains, you’ll receive the “refund” within 14 days. You can use this money to pay for rent, textbooks, and other college costs.
Since your school will pay the loan proceeds in a lump sum, you will have to manage the money carefully to pay your off-campus rent each month.
If you’re using student loans for housing, it may be a good idea to put aside the total rent you’ll need to pay until the next installment of your student loan comes in. That way, you won’t have to worry about spending it by mistake.Some colleges may have “Pell as a paycheck” programs where a Pell grant recipient gives them permission to hold onto the money and they disburse it in monthly or biweekly installments. But you may be better off depositing the student loan money to a bank account so you can control the timing of the rent checks.
Submit the FAFSA Every Year
In order to maintain your federal student loans, you must fill out and submit the Free Application for Federal Student Aid (FAFSA) each year. You also may need to meet other criteria as well, like enrolling in classes at least half time or holding a particular GPA.
If you exhaust your federal student loan limits, you may consider private student loans. Federal student loans (from the government) are generally better than private student loans (from banks and private lenders) because they come with many perks, including:
- Potential for subsidized loans
- Potential for student loan forgiveness
- Options to make student loan payments based on your income and family size
- Options to pause payments if you lose your job or have an economic hardship
- Generally lower interest rates
If you do end up borrowing private student loans, shop around to find the best lender for you.
How to Return Unused Federal Student Loan Funds
Even if you have a subsidized federal loan with a low interest rate, you want to keep your student loan debt to a minimum. After all, you’ll need to pay back everything you borrowed, with interest, when you leave school.
But, sometimes it can be difficult to predict how much you’ll need to borrow to cover your expenses.
Say you were able to cut your expenses midway through a semester, perhaps by taking on a roommate or picking up a job that includes meals. In this case, you may end up with leftover student loan money.
Rather than using it on non-urgent expenses, consider returning your unused student loans to the government. If you do this within 120 days of disbursement, you will not incur interest on that loan amount.
Things to Consider When Using Student Loans for Housing Off Campus
Living in an apartment off campus can be a great way to save on room and board, especially if you split the rent with a roommate. But it can also increase costs if you need to commute to school or have trouble managing money for groceries.
Using student loan money to pay the rent can also increase your costs, since student loans must be repaid, usually with interest.
On the other hand, you may be able to reduce costs by living on campus in a dorm. Some colleges offer an opportunity for students to be resident assistants, typically upperclassmen who offer peer guidance and resources to students living in a dorm. This job typically compensates with a private room, a paycheck or stipend, and potentially also free or discounted housing.
Dorm life can also be more convenient. You typically won’t have to buy much furniture if you live in a dorm, and you won’t have to pay a security deposit or utilities like you would if you rented an apartment off campus.
Consider your options carefully when you’re deciding where to live when you’re in school. Each option has pros and cons with regard to cost, privacy, and convenience.
If you decide living off campus is right for you, you can use your student loans for housing costs. Just know that you’ll be paying interest on that rent down the road.
