What Is A Student Loan Refund and What Can I Do With It?

What Is a Student Loan Refund?

In this article, we’ll answer the question, “What is a student loan refund?” Then, we’ll answer related questions, such as what you can do with it and how you can use it wisely.

A student loan refund is the remaining balance from your student loans after your college has deducted your tuition, mandatory fees, on-campus room and board, and other required college costs.

The leftover money is then refunded to you; thus, the term “student loan refund.” You’ll receive the refund either as a paper check or a direct bank deposit.

Yes, it feels like it’s a windfall or a bonus. But the reality is that it’s neither of these things. Keep in mind that it’s still your student loan – a debt that must be repaid in the future.

How Student Loans Cover More Than Tuition

Let’s first talk about the two major types of student loans available to college students.

• Federal student loans are funded and disbursed by the U.S. Department of Education to eligible students. Think of federal student loans as your first option because of the following:
  • Fixed interest rates over the lifetime of the loan. The current interest rate is 6.53% for undergraduate loans.Lower interest rates than private loans with variable interest rates. In general, variable interest rates tend to be higher than fixed interest rates over time.More flexible repayment options. Standard repayment, income-driven repayment, and SAVE plans are examples.Opportunities for forgiveness, cancellation and discharge are available.
  • Offered in different types:
    • Direct subsidized loans
    • Direct unsubsidized loans
    • Direct PLUS Loans
    • Direct consolidation loan
• Private student loans are given through banks, credit unions, and private lenders. These are based on creditworthiness and, in many cases, require a co-signer. Unlike federal loans, these have fewer borrower protections and repayment options.

Ask about student loans offered by your state and college. Check their terms and conditions because these vary between lenders.

You can take out federal and private student loans to cover your college costs. While you’re likely to take student loans to cover tuition, you can also use it for other purposes. You can use it for your room and board, textbooks and supplies, transportation expenses, and day-to-day living expenses.

So, when you’re considering student loans, look beyond tuition payments. After all, you have other expenses to think about as a college student.

Related Articles:

• What Happens When Financial Aid Exceeds or Falls Short of Tuition?
• Colleges Offering the Largest Student Loan Refund Checks
• How to Use Financial Aid with University Payment Plans
• Do Payment Plans Affect Financial Aid? What You Need to Know

Why You Might Get a Refund Check

Here are a few instances when a student loan refund check is possible:

• Your student loan amount exceeded your college bill. Let’s say you borrowed $10,000 in student loans. But your college only deducted $8,000 for your direct costs and on-campus rooms and board. You’ll receive $2,000 in student loan refund.
• You received other types of financial aid. Grants and scholarships reduce your cost of attendance, too. When these are applied to your bill, the amount that your student loans cover decreases, too. You’ll then receive a student loan refund.
• You live in off-campus housing. If you do, your college obviously won’t charge you for on-campus housing. As such, your student loans will likely have excess that you’ll get as a refund.
• You changed your enrollment status. You’ll likely get a student refund if you change from full-time to part-time enrollment. Fewer credits mean lower tuition and fee payments. In turn, it means less money taken from your student loans and, thus, a likely refund. Dropping courses is also a reason for it.
• You returned books, materials, and supplies that were previously charged. You may receive a partial refund for it.

Now that you know the basics, let’s move on to other aspects of student loan refunds.

When Do Students Receive Loan Refunds?

There’s no fixed answer to the question of when you’ll receive your refunds. This is because several factors are at play here, including:

• Type of student loans, whether these are federal loans or private loans
• Financial aid policies and processes of your college
• Your enrollment status (e.g., full-time, half-time, or part-time)
• Completion of paperwork and other requirements (e.g., entrance counseling and MPN)
• Start dates for your courses (i.e., the later in the term courses start, the more likely your refund will be delayed)

You must then work with a financial aid officer in your college to get specific answers.

Timeline for Disbursement

But here’s a general timeline for disbursement that you can use for reference.

1. Student loans are released to colleges. The timing varies depending on the loan. Federal loans are usually released 7-10 days before the start of classes. But it might be 30 days after classes start for first-time borrowers. Private loans are often released within 3-7 days of loan approval and certification by the school.
2. Colleges use student loans for tuition, fees, and on-campus room and board. This usually happens within 3-7 business days after your college receives the funds. Be patient because about 6,348,000 college students received federal student loans. In your college, between 30% and 40% of your peers availed of these government loans. Processing them isn’t a one-day task, especially in large universities.
3. Colleges process student loan refund checks. The process can take 5-14 business days, sometimes longer, depending on the above factors. You must also ensure that you have completed the requirements. Failure to sign your MPN or verify your information can result in release delays.
4. Student loan refund checks are released. You’ll receive your refund check in one of two ways:
   • Direct bank deposits, which can take 1-3 business days.
   • Paper checks mailed to your valid address, which takes 5-10 business days.

Some schools also allow deposits to prepaid debit cards or college-issued cards.

In short, it can take 2-4 weeks for your student loan refund check to be in your possession. But if you’re a first-time borrower, it can take longer. This is also true if you have delayed documentation or completion of other requirements.

Refunds from Federal vs. Private Loans

As previously mentioned, the type of student loan affects the timing of the release of refunds.

Federal loan refunds have these main features:

• Released according to the academic calendar
• Regular timing (i.e., at least two disbursements every year)
• More predictable and consistent refund amounts
• Easier to track, from loan release to fund release, via your college’s financial aid portal

Private loan refunds are characterized by the following:

• Varying release schedules
• Disbursements are either by semester or lump sum
• May have delays because of certification steps and other approvals

So, between federal and private student loans, federal loans are your best option.

What Can I Do With My Student Loan Refund?

But there’s a more important question: “Can I keep my student loan refund?” Yes, you can. The check’s in your name. The money’s in your bank account.

Furthermore, the student loan is in your name, and you must repay it after graduation. So, you can keep your student loan refund and use it as you wish.

Your next question will be, “How to use a student loan refund once it’s in my hands?” There are two choices you can choose from – use it wisely or use it foolishly.

Smart Uses for Refund Money

Here are the ways that you can spend your student loan refund wisely.

• Rent and utilities
• Groceries and prepared meals
• Textbooks and supplies
• Transportation expenses
• Internet and phone bill
• Medical expenses, including health insurance
• Childcare expenses, if applicable

You can also set up an emergency fund or pay high-interest debt (e.g., credit card).

Things You Shouldn’t Spend It On

Then, here are the foolish ways that you can spend your student loan refund money.

• Designer bags, shoes, clothes, and accessories
• Vacations including travels
• Non-essential electronics
• Entertainment, such as parties
• Risky investments, such as crypto

Always remember that you took out student loans to fund your college education. Stick to your original goal.

Should I Return My Student Loan Refund?

Yes, you can return your financial aid refund. But should you return it in the first place?

You must also make a thorough evaluation before doing so. Keep in mind that it’s money you can spend wisely – or not.

When It’s Better to Give the Money Back

But it’s also money that you may want to return for valid reasons.

• You don’t want to spend it.
• You overestimated your college expenses.
• You received more financial aid than expected.
• You chose to live at home instead of living on your own. 
• You have a part-time job that will help pay for your college expenses.
• You dropped a class or went from a full-time to a part-time student.
• You’re a graduating student and, thus, need less money.

Let’s say you returned your student loan refund. Doing so will reduce your loan’s principal amount, meaning you’ll pay less interest over time. You’ll graduate with less student loan debt, too.

Indeed, you must manage your student loans and financial aid wisely now. Your future self will thank you for it.

How to Return Unused Loan Funds

The process and paper requirements, if any, vary. You must contact your college’s financial aid office or private lender for more details.

Here are a few tips to remember, too.

• Use your college’s student account portal, if any. You’ll find step-by-step directions and contact persons for the process.
• Act quickly. Federal loan refunds must be returned within 120 days of disbursement. No fees and interest will be charged on the returned student loan.
• Specify the amount you want to return. You don’t need to return your entire student loan refund.
• Keep track of your return via the student account portal. Check your loan balance, too.

Be sure to keep documents and emails related to your return of your student loan refund.

Tips for Managing Your Refund Wisely

It’s so easy to spend your student loan refund on frivolous things. It’s also just as easy to spend in one go or a few days. But it doesn’t have to be that way either with these college money tips.

Create a refund budget.

Just as you would create a college budget for your total costs, you can create a refund budget.

• Determine your total refund amount.
• Identify the items that you’d like to spend the money on. Again, prioritize essentials like rent and utilities, food, and books.
• Set aside a small amount and add it to your emergency fund.

Most importantly, follow your refund budget as closely as possible. This way, you will not overspend your tuition refund student loan.

Talk to a financial aid advisor.

Your college can provide a financial aid advisor, usually in its financial aid office. If so, here’s what you can do to maximize your meeting.

• Meet with a financial aid advisor early in the semester.
• Have your budget ready for discussion.
• Discuss your financial aid, loan repayment, and refund options.
• Inquire about student loan budgeting tips.

College is a challenging time in your life. But you don’t have to do it alone, either. Seek help whenever and wherever you can.

Final Thoughts: Make the Most of Your Student Loan Refund

In conclusion, be sure to understand the student loan refund before you spend it. Remember that it’s neither free money nor a bonus. You’ll pay it after graduation – and with interest, too – if you don’t return it.

Then, you must use the money wisely. If you believe that you won’t need it, consider returning it instead. You’ll have less student loan debt to pay off in the future, too.

Best of all, always plan for your financial future. Be prudent in the amount of student loans you take out. Spend your refund checks on essentials. Whatever you do now can have a huge impact on your future.