Protecting Your Privacy: We will never call or email you asking for money. There is no fee to apply. Close

What Do Students Really Buy With Their Loans?

what-students-buy-1 Not too long ago, the Consumer Financial Protection Bureau reported that outstanding student loan debt reached $1 trillion. With the rising cost of college, many families can't afford a higher education without student loans.

It's worth noting, though that tuition is only the tip of the iceberg. There are plenty of other costs associated with attending school, from housing to food to books. Once you start tallying the costs related to a university education, it's not surprising to discover that many students borrow for more than their tuition in order to ensure that they have enough money for living expenses as well.

However, some students go beyond paying for expenses, and end up with student loan refunds that can support fairly comfortable lifestyles. The Chronicle of Higher Education reports that about 60 percent of the 20 million students who attend college each year take out loans annually to cover their costs. Most students don't just take out student loans for one or two years while they get their feet under them; the majority of them treat student loan money as income to be used as part of regular spending throughout the year. Other students have little financial literacy and have no idea what their expenses will be.

Student Loan Money Isn't Monitored

what-students-buy-2 When the government determines how much student loan money a student receives, it bases its calculations on how much the school estimates the total cost of college should be (living expenses plus tuition), as well as how much the family is expected to pay. These calculations are rooted in the income level of the student's family, as well as the assets that student owns. Scholarships and grants can reduce the amount of student loan aid that is awarded.

Once a student loan amount is determined, the money is disbursed to the school to cover costs. Tuition is paid, and, if the student lives in the dorms, housing costs are also paid with the student loan money. If a balance remains, though, it is "refunded" to the student. For students living off-campus, the student loan refund can be large, since the assumption is that the money will be used to cover rent.

what-students-buy-3 Many students, once they receive the refund, use it to pay for books, and then they spend it on other things. While some students use the money to buy groceries, others, according to U.S. News & World Report, spend it on car payments or electronics. Some students use their student loan money to pay down credit cards, or even to invest. Non-traditional students (those going to school at older ages) often use their money to help pay for everyday bills, and costs related to raising their children. Going back to school can take its toll on family finances, so student loan money can be a big help.

The money refunded to students isn't monitored, so students can use it for anything they want, once the school takes its portion of the disbursement.

Unfortunately, the habit of accepting so much in student loans can lead to debt down the road. It feels like "free" money while receiving the student loan refund, but it actually has to be repaid later.