When planning out your education, the problem seems simple enough. You’ve got to pay for books, tuition for a 4-year program and if you haven’t destroyed your credit, then there are a lot of loan options. Easy-peasy… but can you take out student loans for living expenses?
The quick answer is ‘yes, you can’, but we would like to suggest that a better answer would be in the form of a question — specifically, ‘yes, you can, but should you?’.
In this article, we’re going to address this in a little more detail to paint you a realistic picture of the challenges ahead and why simply relying on loans might actually result in not getting your degree at all.
Don’t worry – we’ll also tell you a little about how other students face this challenge and eventually triumph – so read on and we’ll try to put things in a proper perspective so that you’ll be better prepared to navigate this brand-new academic world that you’re about to enter.
Before we get started, however, we want to state clearly that our intent is not to tell you what to do. Our goal here is to illuminate you to the realities of funding your education, the costs involved, and to provide you with as much information as possible so that you may cobble-together a strategy of your own with the help of your parents, college staff that are there to help you, and from advice from fellow students or graduates who’ve experienced the pitfalls firsthand.
With that out of the way, let’s get started!
The Problem Is a Little More Complicated Than Simply ‘Getting a Loan’
Let’s face it – college isn’t cheap. Funding an education in this day and age is comparable to buying a small home, except that you get a substantial delay before you have to start your 10 – 20 years of scheduled payments. The problem with this is that without a realistic assessment of your costs for the next 4 or so years, it’s easy to rush your decision to ‘get it over with’ – after all, you don’t have to pay that loan for a few years!
That said, while you can certainly pay for your living expenses with your student loan, you might not want to literally ‘put all of your money’ on that horse. The problem is that you’re going to have more expenses than you might be expecting and not only will you have to plan for them, there’s no guarantee that the loans you’ve planned on getting are going to make this easy – if possible at all.
To put things into focus, let’s start off with what you can and cannot pay for, and then we’ll tell you what might happen if you pay for things that fall outside of the scope of your loan.
What You Can Pay For With Student Loans?
There are actually quite a few things that you can pay for with your student loan, so that’s definitely good news!
Please note, however, that while these are ‘generally accepted’ as proper expenses, you should still check out the paperwork for your specific loans and grants.
That said, here is a list of some of the most common approved items:
- Tuition and associated costs – This one’s a given – your student loan definitely applies towards tuition and fees.
- Licensing, testing, and certification costs – By extension, testing fees, certification fees, and licensing fees are also expenses your loan may be used for.
- Books and gear – Colleges books are covered (they’d better be, they cost a LOT), and so is equipment and general supplies that you’ll need for labs and such – all may be purchased with your loan money.
- Room and board – On-campus room and board (facility provided, not takeout!) or off-campus housing and utilities bills are also valid applications of your loan-dough.
- Housing essentials – Toiletries, over-the-counter meds, linens, microwave or other cooking gear, and dishes are also considered loan-friendly expenses.
- Groceries – Groceries are also fair game for your loan cash, but don’t let this tempt you to extravagance. Ask older family members who finished college what they were eating for bonus points – what you can learn is not gold — it’s platinum!
- Transportation expenses – Gas, bus fare, subway, train, carpool gas contributions – but only if it gets you to school and back.
If you are studying abroad, most if not all of your expenses may be covered under student loans, however for the purposes of this article we’re going to focus on educational costs locally – studying abroad comes with it’s particular ‘pitfalls and perils’ which we’ll be sure to address that in another article.
What Can You Not Pay For With Student Loans?
Now that you have a good, basic idea of what you can pay for, let’s have a quick review of what you CANNOT pay for. Most of this is common-sense, but it’s good to see in a list form as a little reminder not to get ‘creative’ with the funds that will literally define your future:
- Personal, non-educational debts – You can’t pay your credit card debts, payday loans, auto loans, or other debts outside that you brought with you from your life before you were a student.
- Funding a small business – This needs to be stated – no matter how much you feel your business idea is your ticket to paying for college, you can’t fund it with your loan. Create a solid, detailed business plan and find investors – if it’s a good plan, you’ll get them.
- Entertainment expenses – You know better but we’ll say it anyway – you can’t use your loan for entertainment in the form of travel, upgrading your sound system or TV, Netflix, concerts, and other ‘creative’ expenses that really boil down to ‘luxury entertainment’. If you have to justify it with arguments then you already know the answer, you just don’t like it.
- Down-payments for a new house or vehicle – Now is not the time to buy a house or a new vehicle and that’s not what your education fund is for. Look at the big picture – With a life expectancy in the U.S. of 77.28 years, you’ll get a better interest rate on that house when you’re drawing the salary from the career your education got you and 4 years taking the bus won’t kill you.
- Takeout expenses – Technically, yes, you’re eating while in school, but look at it realistically. Average groceries cost roughly $244 per month for one person and you can eat all of your meals this way, for a base food budget of about $3000 per year. Now, let’s say you treat yourself to a Taco Bell- 1 bean burrito and 2 tacos every day. Each item is $1.69, for a total of $5.07 daily, that adds $152.10 to your monthly food costs, and $1810 to your yearly food budget with is now closer to $5000 per year.
- Helping other students – Helping other students pay for books and equipment is noble, but not an approved use of your student loan. Even if they pay you back next week, on the rare chance that your spending choices warrant enough attention to get you audited, this could cost you’re your education.
What Happens if I Use Student Loan Money for Uncovered Expenses?
We mentioned being ‘audited’ for a good reason and while this section will be short, you need to hear and understand what we are saying here. While the chances are slim of this occurring, if your school hears that you are spending your student loan money on frivolous things, you could lose your loan and the government or private lending institution could demand immediate repayment.
Don’t believe us? Click here to read about the OIG hotline on the official U.S. government website concerning it.
What you’re going to see is information regarding a toll-free hotline where schools and concerned students can report you and an investigation could be launched.
Wait… what??!! How do I protect myself if someone decides to abuse this?
An unfortunate fun fact about coming of age is that as an adult, you need to protect yourself with a paper trail and like it or not, your federal and private funding might well depend on it. We know that this is additional stress to even hear about this right now, but take a deep breath and relax – you can protect yourself from this and it will actually be good for you, because tracking your expenses is a life-lesson that’s going to serve you well.
The easiest solution is two bank accounts – one for you ‘student expenses’ and one for personal expenses. Extra money from your student loan goes into your ‘student expenses’ bank account, while money that you make independently through odd jobs, part-time work, and gives can go into account number two.
This is only inconvenient in the first month or two that you are getting used to it, but it provides you with protection and will help you to do the following:
- When you’re considering if expenses fall into ‘approved ways to spend your student loan’, you’ll think twice when you are drawing it off a specific account and putting the receipt in your ‘approved expenses folder’ that someone auditing you and deciding your future might eventually read.
- Having a separate account for personal expenditures will give you a realistic look at what you’re spending after the first year so that you can realistically tweak your budget, while the ‘student’ account will give you an accurate assessment of your yearly ‘student budget’.
- You’re going to find out firsthand the difference between ‘what I want’ and ‘what I need’. This will be brutal, ugly, and 100% necessary if you intend to be successful in life – if you don’t learn it now, it’s going to bite you somewhere tender in the future. College isn’t just about learning your future trade – this is about learning life – so ‘suck it up’ and take your punches. You need to learn to manage finance now if you don’t know how to do this already.
Now that you know how serious proper distribution of those loan funds can really be, let’s look at some additional expenses that you might not have thought of!
What Other Additional Expenses Should I Expect and Prepare For?
We realize that we’ve likely made ourselves unpopular by now, but we’re not done just yet. The extra money from your student loan, as paltry as it may or may not be, is going to need to be put away – much the same way you’d stock-up on food before a winter that you’d be spending in a cabin in the woods!
Saving everything that you can is going to be vital, because beyond the tuition, fees, and books, you’ve got to think ‘big picture’ in regards to a host of other expenses that you might not have anticipated. Here are some examples:
- Additional education – The National Center for Education Statistics tell us that only 41% of full-time college students end up earning their Bachelors in 4 years they’d planned to do it in. The other 59% manage to pull it off in 6 years. You can argue with the statistics, but the smart money if to ‘bet on 6’. If you’re wrong and you do get your Bachelors in 4, then ‘boo-hoo for you’ if you budgeted because you’ll have extra money that you can put towards your educational debt.
- Electronic maintenance – Veteran students know this lesson very well – if your laptop dies and you don’t have a plan, then you’re in big trouble. Statistically, 1 in 3 laptops fail within 3 years, and that’s not even factoring in bad-luck like a spilled drink or dropping your laptop. Assume that something WILL happen and plan for it or you will regret it.
- Security Storage – Another surprise cost that you might not expect is storing your items when you leave school to visit family. If you are living in a dorm, for instance, you’ll likely have some gear that you don’t want to leave there, so you need a place to put it. A small storage unit is only $70, in most cases, but it can protect your valuable equipment in your absence.
- Printer costs – You’ll be printing assignments and if you use your own printer, what does it cost? Well, assume that if a $20 printer cartridge prints out 200 pages, and you’re printing a modest 25 pages a week, that’s about 700 pages a year – 4 cartridges – approximately $80. You can cut corners here – most colleges allow you some printing for free, so find out how much and you can cut a small corner.
- Vehicle maintenance – Cars break down, which means you have to have them towed to a mechanic, and pay the cost of repair or you’ll be taking the bus. You also have to have the oil changed and other preventative maintenance performed to keep it running and in good shape.
- Moths (clothing considerations) – In 4 – 6 years, you’ll be going through a lot of clothing, and impulse buys can really hurt you during this time. You’ll need to consider this in your budget or it could take a considerable hit.
- Medical bills – Accidents happen and there’s no guarantee that you won’t have any health problems during school – and the stress doesn’t help things in this regard. This is yet another reason that you need to track every dollar.
- Fraternities and sororities – Some consider fraternities and sororities frivolous but this is definitely not the case. Networking is something that you need to learn and you might be surprised how they can help – your ‘brothers and sisters’ can help you to find employment NOW and even in the future. These organizations have dues, however, such as social dues, badge fees, meal plan and housing fees, membership dues, and more. On average, it’s around $2000 per year, but it’s money well-spent. Like it or not, in college and in life in general, ‘who you know’ makes an enormous difference.
That’s a Lot of Expenses – How Much Does a 4-Year Student Usually Borrow?
Okay, so we’ve talked about the ‘real expense outlook’ for college, so now let’s focus the perspective a little more by giving you an idea of what most other students are borrowing when it comes to student loans. On average, a 4-year student borrows approximately $25,921 towards 4 years of school. That comes to about $6480 per year, and that’s not even factoring in those 59% of students we mentioned that take an extra 2 years to get their bachelors.
If we do factor that in, then that’s an extra $12,960, so that Bachelors will cost you $38,881 – close to $40,000 dollars. Let that sink in for a bit.
So, how do these students pull it off? Well, we know that telling you about all these expenses has been a big kick to the morale, but don’t let it dissuade you. What we’ve working up to is framing the importance of being proactive in your strategy to make it through those 4 – 6 years.
We’re going to tell you a little more about possible ways to do this but we should stress now that you DON’T want to rely completely on loans if you can possibly avoid it – with one possible exception.
A Credit Builder Loan Might Serve You Well if You’re Disciplined
Rather than getting a ‘full ride’ from your loan that you’ll be paying for the next 20 years, one strategy that some students utilize is a credit builder loan. This takes discipline but if you’re serious about building a financial strategy that will help you for the rest of your life, then this option might be a good one for you.
A credit builder loan is offered by various financial institutions and the way they work is you are given a loan for $2500 – provided with no credit check – and the funds are placed on hold in your savings account. For a term of typically 18 months, you’ll build your credit by slowly paying the loan. If you don’t have existing debt, this can increase your credit by as much as 60 points at very little cost to you.
This is one way to help build your credit and there are certainly other ways to go about it, so file this away and remember that a good credit strategy now can give you a lifetime of benefits.
A Realistic Plan Is Part-Time Work and a Budget That You Can Stick To
Instead of relying 100% on loans, the best strategy is going to be working while you are enrolled in school. While you might think ‘how am I supposed to focus on my education while working?’, the honest truth is that most students are doing this and the answer comes out to ‘you’ll find a way’.
According to the Georgetown University Center on Education and the Workforce, 70% of college students are doing exactly this! We could give you a fancy argument as to why this is the best way, but let’s look at the hard numbers and how they change when you factor in a part-time job.
| Income sources | By month | By semester | Academic Yearly total |
| Grants or Scholarships | $556 | $2500 | $5000 |
| Loans | $778 | $3500 | $7000 |
| Family contributions | $100 | $450 | $900 |
| Dedicated Job | $1500 | $6750 | $13,500 |
| Odd jobs | $100 | $450 | $900 |
| Total income | $1434 | $6450 | $12,900 |
| Total income(with work) | $3034 | $13,650 | $27,300 |
The numbers don’t lie, so take a good look at them and ask yourself ‘which budget is more realistic – $12,900 per academic year or $27,300?’. Obviously, it’s the $27,300, but if you don’t work, you’ll need to find a way to borrow close to $15k extra per academic year.
This is why 70% of students ‘work their way’ through college – it’s realistic, sensible, and practical – especially compared to the alternative of borrowing more to have the same amount of funds as if you worked. That would be an additional $15k per year, for 4 – 6 years, to a grand total of $60,000 to $90,000 of big, ugly debt.
50/30/20 – The Simple Budget That Will See You Through This
So, we’ve covered expenses as realistically as we can in the space that we have today, as well as understanding what your income looks like with a ‘loans only’ strategy vs a ‘loans plus job’ approach.
The good news about working your way through college instead of relying on loans is that the additional take-home/after taxes income allows you to use a simple, effective budget known affectionately as the ‘50/30/20’. This is a good starting budget that you can build on later, and in a nutshell, here’s what it looks like:
- 50% – 50% of your budget goes towards things you that NEED – this allows you to borrow less overall and to instead cover some of the rent, utilities, and other necessities that your student loans don’t cover.
- 30% – This 30% is all about YOU – morale-boosting things like stereo or tv upgrades, congratulatory road trips in your free time – this is for things you WANT but don’t necessarily need.
- 20% – This 20% goes straight to savings, so that you’ll have an ‘emergency’ fund in case your laptop breaks down, you get sick or have another medical emergency, and otherwise you DON’T TOUCH IT.
Some Closing Words on Living Expenses and Funding Options
Today we’ve answered the question ‘can you take out student loans for living expenses’ and while you certainly can, it’s seldom a good idea to put all of your eggs in one basket. College costs aren’t limited to books, pencils, and tuition, but rather quite a bit more complicated as we’ve attempted to demonstrate today.
As a result of this, a lot of promising students get into school and find themselves facing a hard, uphill battle just to get through to the 4-year finish line of a Bachelor’s degree – but if you plan carefully and you have a hard work ethic, then you’ve got excellent chances of pushing through this.
It won’t be easy, there are definitely strategies that can help, such as building up your credit early-on and working to help supplement how much you can pay for on your own while relying on loans as little as possible.
We hope that the information today has helped to give you a look at the overall big picture so that you’ll be better equipped to prepare – this is the big time, folks!
Finally, we highly recommend that you talk with any college financial planning experts, family members, and other students who have the advantage of experience behind them. This will help you to make a plan of your own and before you know it, those 4 – 6 years will fly by and you’ll be able to start your new career with better credit, some savings socked away, and an education that give you the completive edge!
Don’t worry – you’ve got this – and that bright future you’ve been dreaming of is just around the corner. You’ve just gotta work for it!
References
Nerdwallet; “How to Pay for Extra College Expenses”, “How to Budget in College”, “College survival guide’, “Student loans for living expenses”
https://www.nerdwallet.com/article/loans/student-loans/extra-college-expenses
https://www.nerdwallet.com/article/loans/student-loans/college-student-budget
https://www.nerdwallet.com/article/loans/student-loans/college-survival-guide
https://www.nerdwallet.com/article/loans/student-loans/student-loans-for-living-expenses
Best Colleges; “The Student’s Guide to Budgeting in College”
https://www.bestcolleges.com/resources/budgeting-in-college
Credible; “How to Pay for Greek Life: Sorority & Fraternity Costs”
https://www.credible.com/blog/student-loans/sorority-costs/
US News; “The Pros and Cons of Working While in College”