Preparing for college is exciting, but it can also induce anxiety when considering the financial costs. After tuition, housing may be your next largest expenditure.
If you are receiving student loans, it is helpful to know you can use student loans for housing costs. Federal and private student loans can be used to cover costs that are necessary to your education, which is why you can use student loans to cover living expenses such as rent and housing.
If you plan to use student loans for rent, it is important to be wise about where you choose to live. The rising costs of tuition and housing can have a major impact on your future finances. Plus, because borrowed money generally incurs interest, higher housing costs can mean paying more money both now and in the future.
In this blog, we will explain how you can use student loans to pay for rent, the impact of using loans, and a few common mistakes to avoid.
How Student Loans Can Be Used
When you take out a student loan, you’re required to sign a loan agreement or, with federal loans, a master promissory note. These agreements outline the terms of the loans, and you must agree to use the loan only for qualifying education-related expenses.
Per that agreement, it’s important to understand how student loans can be used. Although lenders may not constantly monitor how you use your loan funds, using them for unnecessary purchases can cause you to take on too much debt. And you’ll ultimately have to repay those loans with interest, so the more you borrow, the more interest will accrue.
What Can I Pay for Using My Student Loan Funds?
Your student loans are intended to cover eligible education expenses. Those expenses include tuition and textbooks, but it also includes other expenses that you may not think of at first.
According to the 2023-2024 Federal Student Aid Handbook, allowable costs include:
- Tuition and school-required fees
- Books, course supplies, and equipment, including a computer or software
- Transportation
- Food
- Housing
- Dependent care costs, such as daycare for children
What Can’t I Pay for Using My Student Loan Funds?
Although you can use your loans for a variety of purposes, you cannot use student loan funds for the following expenses:
- Purchasing or financing a vehicle
- Entertainment, including streaming services or sports equipment
- Travel for school holidays
- Meals at restaurants or takeout services
- The costs of launching a business or side hustle
Understanding the Cost of Attendance
The cost of attendance (COA) differs for each school, but many schools calculate COA similarly. The cost of attendance is meant to show you how much you can expect to pay to attend school and cover your living expenses.
It’s important to remember that your chosen college’s cost of attendance is the maximum you can borrow in federal student loans, minus any scholarships or other financial aid you may receive. Schools will provide different student budgets based on different circumstances for students. For instance, schools may consider the following factors when determining a student’s COA:
- Does the student live in-state or out of state?
- Is the student living on campus or off campus?
- If the student is staying in-state, will they choose to live at home?
Ultimately, keep in mind that the cost of attendance is an estimate that can help determine how much you can borrow in federal student loans.
Dorm vs. Off-Campus Housing Costs
Beyond your college tuition, one of your biggest costs with postsecondary education is room and board. The average cost of housing and food at a public school was $12,770 for the 2023-2024 academic year. For private schools, the average cost was $14,650.
School-provided housing is likely your cheapest option if you plan to attend a school in an area with a very high cost of living — such as parts of California or New York. But with other schools, you may be able to find an off-campus apartment for much less.
Although the cost of meal plans varies by school and location, you can expect to pay about $5,000 per academic year for a school meal plan.
If you lived off-campus, you’d have access to a full kitchen and could prepare the meals yourself. If you split the costs of groceries with a roommate, you could save a substantial amount of money.
However, there are some things to keep in mind before moving off campus:
- Lease terms: College-provided housing is based on a typical academic year, so you don’t have to pay for the times you’re not there in the summer. But with an off-campus apartment, you’ll likely have to sign a 12-month lease, so you may have to pay for the space even when school isn’t in session.
- Transportation: If the rent of an off-campus apartment is cheaper, consider your added transportation costs. Instead of being able to walk to class or take a college-provided shuttle, you may have to drive or take public transportation instead.
- Convenience: If you have early morning classes or participate in a lot of on-campus activities, the convenience of living in the dorms may be worth the added cost.
- School policies: Some colleges require students to live on campus for at least the first year.
FAFSA and Rent
The Free Application for Federal Student Aid (FAFSA) is the first step to take in order to receive financial aid of any kind, including scholarships, grants and federal student loans.
The FAFSA requires your financial information, plus your parents’ information if you are a dependent. Those details determine your expected family contribution and your eligibility for need-based financial aid.
Submitting the FAFSA early is important because some funding is available on a first-come, first-served basis. The earlier you submit your application, the more funding you may be eligible to receive.
If financial aid doesn’t cover your living expenses, then you may need to borrow student loans to pay for rent, and the FAFSA is what you use to apply for federal loans. There are several advantages to federal loans:
- You don’t have to make payments while you’re in school.
- You’ll have six months after graduation to find a job and get settled before you have to make payments.
- Federal student loans have multiple repayment plans.
- If you work for a non-profit organization or government office after graduation, you may qualify for loan forgiveness.
However, it is imperative to be aware of how much you are borrowing because there is a federal student loan borrowing limit. If you hit the limit, you will likely have to take out private loans to help pay for any remaining expenses.
Understanding Student Loan Disbursement
Once you are approved for a student loan, it is essential to know how long it takes to get student loans if you plan on using student loans for rent. Once your loans are approved, your lender will disburse them to your school.
Federal loan funds typically go to your school a few days before the semester begins to pay for any tuition, fees, meal plan, or on-campus housing. Funds from private lenders can take longer to be disbursed, so plan accordingly by applying early or budgeting with other funds until disbursement.
The remaining funds are known as your student loan refund and come to you in the form of a check from your school. This generally takes about two weeks after the beginning of the semester. Your student loan refund can be used for textbooks, housing, and other living expenses.
With that in mind, if you are living off-campus and plan to use student loans for rent, be sure to budget for the first couple of weeks in the semester without additional funds so you can make sure to not miss a rent payment.
What to Do If Your Student Loan Disbursement is Delayed
If your federal student loan disbursement is taking longer than the typical two weeks, you should be prepared to pay your rent out of your own funds for at least a month or two.
Although on-campus housing may understand a disbursement delay, it’s important to be prepared. Borrowing funds from family members or saving from a summer job can get you ready to make rent payments in the case of a delayed student loan disbursement.
Mistakes to Avoid When Paying Rent With Student Loans
While you can use student loans for housing expenses, it is important to consider the impact of borrowing more loans than necessary. Adding unnecessary debt to your student loan total creates a greater financial burden after graduation. Not only will you owe the funds you used to pay for rent, but you will also owe interest in many cases.
To avoid making this costly mistake, consider these options before using student loans to pay for rent:
- Return extra funds. Use only the amount of the student loan refund you need and return the remaining funds. This will allow you to take on less debt and save on student loan interest costs. With federal loans, as long as you return the unused funds within 120 days after the loan’s disbursement, you won’t have to pay any interest or fees.
- Weigh your housing options. On-campus housing is usually less expensive than off-campus housing and can help save you from borrowing more funds.
If you do decide to use student loans for rent, avoid these mistakes:
- Choosing expensive off-campus housing. Although an off-campus apartment may offer more amenities and comfort, those perks will cost you. Forgo the luxurious living experience to save money; you’ll be grateful you did when you’re not drowning in debt later.
- Only using student loans. Although you may need student loans to cover your expenses, try reducing the amount you need to borrow by working a summer job or side hustle.
- Living outside your means. Avoid any unnecessary living expenses, like food from delivery services, the latest smartphone or expensive vacations. Living within your budget will make managing any debt you have to take on for your degree easier.
Apply for Private Student Loans With ELFI
If you need to apply for student loans, ELFI offers private student loans for undergraduate students, graduate students, and parents. We aim to make the borrowing process simple and affordable with expert assistance from Student Loan Advisors and no origination fees.
