As a college student, you might know your tuition fees, but estimating other related costs like living expenses and books can be difficult. That’s why you may loan more money than you really need.
When you come to realize that you’ve borrowed excess funds, it’s important to know the steps to take to rectify the situation.
Why You Have Leftover Student Loan Money
When applying for federal student loans or private loans, you may request the highest amount you qualify for, anticipating it will cover every possible expense.
This strategy seems logical because you aim to ensure that all your educational costs from tuition to the miscellaneous fees are secured. However, you may end up with more than necessary for several reasons.
1. You’re Easy to Overestimate
Firstly, your calculations might have been based on overestimates. It’s common to overestimate living expenses or books, especially if you’re new to college life and unsure of the actual costs involved.
Once you’re living the reality, you might find ways to save money, like buying used textbooks or finding cheaper housing. These cost-saving measures can result in having excess funds from your loan.
2. You May Receive Funding after the Loan
You might have received additional funding after the loan was dispersed. Scholarships, grants, or even family contributions can unexpectedly decrease your financial need.
These forms of aid might come through at different times, sometimes after you’ve already secured a loan based on your initial financial situation.
Another possibility is that you might have dropped a class or switched to a less expensive program after the loan disbursement, thus reducing your tuition fees.
In other cases, student loan amounts may be calculated using a standard cost of attendance, which applies to all students generally, without considering individual circumstances that might reduce a student’s particular costs.
3. Unexpected Lifestyle Changes
Meanwhile, unexpected lifestyle changes can alter your financial needs. Maybe you’ve decided to move back home to save on rent, or perhaps you’ve been successful in landing a part-time job that can help offset some daily living costs.
If you find yourself with extra student loan money, it’s tempting to see it as a windfall. However, remember that this money isn’t free, it’s borrowed, often with interest accruing from the moment it’s disbursed. Managing this excess wisely can save you from paying more in interest over the course of your loan.
The key takeaway is that circumstances change, and so do your financial needs. When these changes leave you with more loan money than necessary, it is important to act quickly and return the surplus funds to avoid unnecessary debt accumulation.
Next, let’s explore whom you should contact to help return this extra money.
Who Do You Contact If You’ve Accepted More Loan Money Than You Need?
Once you have realized you have more loan money than required, you need to act quickly. The steps you can take, and whom you should reach out to, can go a long way to help you manage your debt effectively.
Your School’s Financial Aid Office
Your initial contact should be your school’s financial aid office. They can provide details on how to request a cancellation or return of your loan money. The office can guide you through their specific process, which will typically involve submitting a written request. They can also advise on any deadlines you have to meet.
When you receive a student loan, the funds are usually sent directly to your school to cover tuition and fees, and the remainder is given to you.
If you return the money through the financial aid office within the loan’s “cancellation” period, which can be as short as 14 days or as long as 120 days, depending on the loan type, the funds can sometimes be returned without accruing any interest.
Your Loan Servicer
If the cancellation period with your school has expired, you can contact your loan servicer, the company that administers your loan. They can give you instructions on how to return the money and help you adjust the loan amount you have accepted for the current period.
You can find the contact information of your loan servicer by logging into your Federal Student Aid account for federal loans or by checking the paperwork or emails from your private loan provider.
They can guide you on how to make a payment to reduce your loan balance. Acting quickly is crucial because any interest that has accrued on the excess amount might still be your responsibility.
If you have federal loans, there is typically a 120-day period from the disbursement date during which you can make a payment and avoid paying accrued interest on the returned amount.
However, the process may differ with private lenders. Many will allow you to pay back the excess loan amount, but the terms and conditions, such as the impact on interest or potential fees, can vary significantly. It’s important to get a clear understanding from your lender to avoid potential penalties or fees.
What to Do With Leftover Student Loan Money If You Cannot Return the Money
If you’ve missed the window to return your student loan money directly to your lender, you’re not out of options, but it will require some planning.
For example, let’s say you have an extra $10,000 left over. With a 7% interest rate, that could accrue around $700 annually in interest alone. To avoid this unnecessary cost, you can consider the following actions:
1. Prepay Your Existing Student Debt
One of the smartest moves you can make with the leftover funds is to prepay your existing student loan debt.
By applying the surplus amount to your loan principal, you can reduce the total interest you’ll pay over time. Even if you’re still in school, making payments early can lighten the load significantly.
Before you do this, ensure that your loan servicer applies the extra payment to your principal amount and not to future payments, which will maximize the impact on reducing your overall interest.
2. Use It for Other Educational Expenses
You can also utilize the funds for essential educational-related expenses, which is still a financially sound decision. Legitimate costs can include:
- Textbooks or course materials that you’ll need for future semesters.
- A reliable laptop or other necessary technology that contributes to your studies.
- Paying for upcoming educational-related travel, such as study-abroad programs or internships.
Keep in mind that these funds are used for their intended purpose, as straying into non-educational expenses can lead to debt that could have been avoided, placing an additional financial burden on your shoulders.
3. Set Aside for Future Tuition Payments
You can also consider setting it aside for future tuition payments. Saving this money in a high-yield savings account could earn some interest before you need to use it for the next semester’s tuition, effectively cutting down the total loan amount you’ll need then.
4. Create an Emergency Fund for Education-Related Expenses
An emergency fund is a reserved sum of money used specifically for unforeseen expenses related to your education. This can include emergencies like sudden travel due to family illness, health care costs not covered by insurance, or even unexpected academic fees.
How to Avoid Borrowing Too Much Next Semester
To prevent borrowing too much money in the future, it’s important to accurately estimate your needs for the semester and anticipate possible changes.
Calculate This Semester’s Costs
To avoid borrowing too much next semester, begin by recording how much you spent in total this semester. Carefully examine your expenses and categorize them: tuition, textbooks, living costs, personal expenses, and so on.
This tracking will give you a more realistic view of your spending habits and where you can potentially cut costs.
Here’s how you can go deep into this process:
- Track Your Spending Religiously: Keep receipts and make a note of every expenditure. Use budgeting apps or simply a spreadsheet to capture every dollar spent over the current semester.
- Review and Analyze: Once the semester is over, review your recorded expenses. Are there areas where you spent more than anticipated? What about areas where you didn’t spend as much?
- Adjust Your Estimates: Use your actual spending to adjust the estimates for your next semester. If you consistently spent less on food than you budgeted for, for example, reduce the food allowance for next semester’s loan request accordingly.
- Plan for Next Semester’s Unique Costs: Each semester may have different financial needs. Account for any one-time purchases that won’t recur (like a computer or a calculator) and adjust your loan request. Additionally, consider the cost of courses you plan to enroll in next semester – these may have different fees associated with them.
- Include a Buffer: While you want to avoid borrowing too much, it’s also important to have a small contingency fund for unexpected costs. However, keep this buffer reasonable to avoid the temptation to spend unnecessarily.
- Be Realistic With Your Living Expenses: Housing and food can vary greatly from one semester to the next, especially if you’re planning on moving or changing meal plans. If rent is likely to increase or you’re considering a more expensive meal plan, factor these into your next semester’s budget.
- Consider Your Income: Will you be working part-time next semester? Do you have reliable income from summer employment that can be used? Factor in this income to reduce the amount you’ll need to borrow.
- Apply for Financial Aid Early: Estimate costs and apply for financial aid as early as possible. The sooner you know your financial aid package, the sooner you can plan and avoid scrambling for funds at the last minute.
Research and Apply for Scholarships and Grants
Look for scholarships and grants which do not need to be repaid. There are thousands of opportunities available, and every bit of free funding can reduce the amount you need to borrow.
Exhaust All Other Financial Aid Options
Besides of scholarships and grants, you can explore all other financial aid opportunities. These can significantly decrease the amount you need to borrow, making your post-graduation financial burden lighter.
Consider work-study programs offered through your school as an alternative means of funding. Such programs provide part-time jobs that not only help with college expenses but also often give relevant work experience.
Remember that money earned through work-study doesn’t count against your FAFSA award, so it can be an excellent way to supplement your income.
Examine any extracurricular activities or community service work you’re involved in – there can be associated scholarships or grants for active participants.
Look into unique scholarships that you may qualify for; this could be anything from scholarships for students with specific talents, those who plan to enter certain fields, or even awards based on essay competitions.
You should also revisit your FAFSA and ensure it’s up to date. If you or your family’s financial situation has changed since you submitted your FAFSA, update the information as soon as possible. This could potentially increase your eligibility for certain forms of aid.
It’s also worth setting appointments with financial aid counselors at your school. They have extensive knowledge of the financial aid landscape and can offer personalized advice tailored to your specific circumstances.
They might know about emergency funds or hardship scholarships offered by your institution that aren’t widely advertised. Additionally, they can assist you in understanding the fine print of different aid packages and suggest ways to appeal for more aid if your initial award is insufficient.
Moreover, financial aid counselors can often connect you with alumni networks or foundations that offer scholarships that may not be on your radar. They can guide you through application processes and even give feedback on application materials such as essays and portfolios.
As a college student, managing your finances can be challenging, especially when it comes to student loans.
Ultimately, the goal is to strike a balance between having enough funds to comfortably support your education while not accruing debt that will be burdensome later on.
After calculating your needs for the upcoming semester, proceed to the next steps to minimize the amount you need to borrow.