Student loans can be a crucial part of funding your education; however, when taking out student loans, you should estimate approximately how much you’ll need for tuition and other related costs. It is still easy to find yourself with more money than you need.
Why you might have leftover student loan money
When taking out federal student loans, you can ask for the maximum amount you’re eligible for. This amount ranges from $5,500 to $12,500. It varies depending on your year of insurance school and whether you’re an independent or dependent student.
Your student loan first goes to the school, where it will be applied to tuition and fees. If there are leftover funds, they will be sent to you through a cheque, which can cover school-related expenses. Sometimes, students get more loan money than they need.
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What to do with leftover student loan money
There are several things you can do with the loan if given in excess. They are;
- Returning the Money
Returning the excess student loan is one of the best options, provided you don’t need it for school-related expenses, as interest from the loan starts adding immediately unless you have subsidized federal loans. For students with unsubsidized federal loans or private student loans, you will be charged the interest as soon as the loan is disbursed.
For federal loans, you can return the funds within 120 days without incurring interest or fees. You can contact your finance department or your servicer and ask them how to return the leftover amount.
For private loans, check the terms of your lender, as policies vary. You will have to contact the lender directly and inquire about how to give back the money.
- Use it for Other Educational Expenses
You can use your leftover money from the student loan to purchase or settle other educational expenses. Since it is a student loan, you can only use it to settle educational expenses.
- Prepay Your Existing Student Debt
If you have missed the 120 days for returning the excess money, you can use it to pay off some of the existing student loan debt.
There are no prepayment penalties for both federal and private student loans, so you will not be penalized for paying your student loan off early.
There are two strategies which you can use to determine which loan to put your money towards;
- Debt Avalanche Method: This is the method where you choose the highest interest rate so you will see the most total interest.
- Debt Snowball method: this is the method that requires you to pay off the smallest loan balance to inspire you to pay the rest.
Who to Contact if You’ve Accepted More Loan Money than You Need
If you realize you’ve borrowed more than necessary, here’s who to contact;
- School’s Financial Aid Office: The school’s financial aid office should be your first point of contact. They can help adjust your loan amounts and guide you through the process of returning excess funds. They also help with financial planning and scholarship/grant information.
- Loan Servicer: For federal loans, contact your loan servicer through your Federal Student Aid account. They can provide instructions on how to return the excess funds and ensure any payments are correctly applied to your loan principal.
- Private Loan Lender: If you have private loans, reach out to your lender directly. Each private lender has different policies regarding the return of excess funds, so it’s crucial to understand their specific terms and conditions.
- Academic Advisor: For broader financial advice and to prevent future over-borrowing, schedule a meeting with your academic advisor. They can provide insights into managing your funds and connect you with financial literacy resources
