With the cost of living and rent prices around the country creeping ever higher, you may be nervous about affording a house or apartment near your school on top of tuition, books, and other educational expenses. While student loans are a popular financial aid option used to pay for college expenses, they can also be used towards housing expenses like rent.
Before using your student loans for rent, it’s essential to be well-informed due to potential drawbacks, especially with private student loans.
Understanding the Cost of Attendance (COA)
The cost of attendance (COA) during the academic year at a college includes on-campus housing and/or room and board, tuition and fees, meal plans, 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.
You can use student loans for housing off campus up to the allowance specified by the college. The COA estimates what your student loans will cover. If your rent or housing expenses exceed your university’s estimated cost of attendance, you won’t have enough loan money left over to cover your housing costs.
Both private and federal student loans can be used to pay rent, but the type of housing can impact the amount of debt you’ll have to pay back later. Federal loans are issued based on the FAFSA, while private student loans require an application and approval from private lenders.
Theaverage cost of room and boardfor a four-year college is $12,770. The exact amount you’ll pay for living expenses will vary depending on whether you live on or off campus.
In many cases, it will actually cost less to live off campus than on campus, but this will depend on the cost of on-campus housing at your university and the cost of living in that area.
Categories of Eligible Expenses for Student Loans
Student loans can be put towards several different categories of expenses, provided they meet the eligibility criteria. Some examples include:
- Tuition and fees. Estimated tuition can be calculated by looking at your school’s tuition cost per credit hour and multiplying that by the number of credit hours you will be taking per semester.
- Books. Your textbooks are an added expense that is easy to overlook. Every semester, you’ll have to get new books for your classes.
- Room and board. Once tuition and fees are covered, you can use any remaining student loan money to cover your living expenses.
How to Use Student Loans for Rent
There are several important factors to consider when using student loans for rent.
Budgeting Your Loan Money
The lender will send your student loan funds to the college, not to you directly. If you’re living in a dorm or off-campus housing, the money will be applied to room and board next.
If a credit balance remains, you’ll receive the student loan refund within 14 days. You can use this money to pay for rent, textbooks, and other college costs.
Timing and Payment Scheduling
Since your school will pay the loan proceeds in a lump sum, you must manage the money carefully to pay your off-campus rent each month. If you’re using student loans for housing expenses, 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.
Student loan disbursem*nt can be delayed in some circ*mstances. This usually happens if you are not enrolled in enough credit hours or if you did not submit adequate paperwork (such as transcripts or test results) to enroll in classes.
Pros and Cons of Using Student Loans for Rent
If you plan to use student loans to pay rent, it is important to know that this can have some drawbacks. In some situations, student loans may be used for rent (such as when completing programs that don’t allow for the time to work). Below are some pros and cons of using student loans for rent.
Pros
Simplicity and Convenience
Using your student loans towards rent can be a straightforward way to ensure your rent will be covered. It can make it a little easier to get bills paid without worrying about how much money you’ll make at work.
Ability to Focus on Studies
When completing a rigorous college degree, it can be difficult to focus on your classes while working to pay your bills. Using student loans towards rent allows you the freedom to focus solely on your studies and excel in your classes.
Cons
Long-Term Debt
Most people will spend years paying off their student loans, so it is important to keep the amount of loans you take out as low as possible if you want a realistic chance at paying them off.
Putting loans towards your rent will increase the amount of loans you must take out and, ultimately, the amount of debt you accumulate in the long run. Consider how this will impact your repayment plan, loan payments, bank account, and ability to manage your finances over time, and even your credit score.
Interest Accumulation
Student loans will also build interest over the years, which is another reason you want to keep your loan amounts as low as possible. The more loans you take out, the more interest will accumulate over the years. Take this into consideration when deciding to use loans to pay rent.
Also, be mindful of interest rates and how they will affect the total amount you must repay. However, subsidized student loans will not accumulate interest until you have completed your degree.
The exact amount of interest your loans will accumulate yearly will depend on the amount you are taking out in student loans and the interest rate of the loans. Interest rates vary year to year but currently range from about 5.5% to 10.2%. If you take out around $6,700 annually to cover your college expenses with an interest rate of 6.8%, you can expect to accumulate $2,552 annually.
Common Mistakes to Avoid
You don’t want to make these common mistakes when using student loans to pay for rent.
Taking out more loans than necessary
Student loan debt is inevitable for many college students. If you use them, pay close attention to how much you are taking out and how that money will build interest over the years. You don’t want to take out a large loan without considering scholarships, grants, and building up personal savings before starting school.
Only use student loans when absolutely necessary to avoid creating unnecessary financial stress. But, also look to your future to ensure you aren’t creating financial stress for your future self.
Poor timing with loan distribution and bill due dates
If you’re going to use your student loans to pay rent and other bills, you need to ensure that you are timing payments out correctly. For example, if you need to move into an apartment before the start of the semester, you might not have access to your loan money yet, meaning you’d need to have the funds available to pay for your move-in expenses beforehand.
Using leftover loan money for discretionary spending
Sometimes, there is loan money left over after all expenses are covered. You can return this money to the lender (which we highly recommend!). If you use extra loan money for discretionary spending, you’re just increasing the debt you’ll accumulate and have to pay back later – with interest. Trust us, it isn’t worth it.
Spending more on your degree than you’ll realistically make in your career field
When determining how much money you’re going to take out of loans, it is important to also consider how much money you can realistically make in your career field after you finish your degree. For example, many college students take out loans to pay their way through medical school, knowing they’ll make a comfortable income afterward.
If you’re pursuing a lower-paying career path, consider how much you’re taking out in loans and how you’ll realistically pay that debt off.
Alternatives to Using Student Loans for Rent
Student loans are a great resource when needed, but they are far from your only option. It is important to exhaust all options andthenuse student loans to cover any remaining expenses. Before taking out loans, consider some options for covering your expenses.
Scholarships and Grants
Plenty of different scholarships can be applied to your college expenses, lessening the amount of loans you’ll have to take out. Usually, if scholarship money is left over, it will be given to the student to use for whatever you want. Before your term starts, research different scholarships and apply to as many as you can.
Part-Time Work
A part-time job may help to cover your college and living expenses. You can work extra during school breaks to save up for the coming semester and then work less when your classes start so that you can focus on your coursework.
Family Assistance
Not everyone can rely on family assistance to cover college costs, but it can be a huge help if you do. Consider whether any of your family members can contribute to the cost of your higher education in any way.
Roommates and Shared Housing
Having a roommate can seriously lessen your monthly living expenses. Find a roommate to share a space with so that your bills are less. You’ll likely even make a friend in the process!
Student loans can be a way to cover rent when needed. However, it is important to consider other methods for covering living expenses before defaulting on loans since this is borrowed money that you must pay back down the line.
If you are going to live off campus and use student loans for rent, make sure to be aware of your school’s cost of attendance and apply for scholarships and grants to lessen the amount of loans you have to take out. Here are some tools to learn more aboutvarious forms of financial aidto help you along your educational journey and beyond.
