Five Times To Use Your Student Loans For Living Expenses

by Hank Coleman

Five Times To Use Your Student Loans For Living ExpensesThere are many student loan myths floating around out there, such as the idea that student loans should only be used to pay for your tuition. Unless you make a lot of money outside of school or your private university comes with a massive annual tuition bill, you’ll likely qualify for more student loan assistance than you need for tuition alone. Is it alright to use student loans for living expenses?

When is it alright to use student loans for living expenses? What expenses should you use your student loans for? You certainly do not have to take out the full amount offered in your financial aid package, but you also don’t have to restrict yourself to only using student loans to cover tuition.

When To Use Student Loans For Living Expenses

If you’re debating whether or not to use some of your student loans for non-tuition expenses during undergraduate or graduate studies, here are some dos and don’ts you should follow when using student loans for living expenses.

Should you use student loans for living expenses? Here are a five times when you might have to.Click To Tweet

Academic Expenses

There are multiple tax benefits for education offered by the IRS, including tuition payments (whether paid for with your own money or with the help of student loans) and other qualified academic expenses. For example, the tuition and fees deduction allows you to deduct up to $4,000 per year on your income taxes, which justifies the student loan expense.

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You can also later deduct up to $2,500 per year in student loan interest payments if you borrowed them for qualified educational expenses (tuition and fees, room and board, books, supplies, equipment, and other necessary expenses for higher education, including graduate school). So, instead of avoiding student loans at all costs, you can embrace their assistance in short-term help with academic expenses and get some relief in the long-term payoff with student loan interest deductions.

Paying Rent with Student Loans

If you have access to another form of income during your studies, it’s best to pay for rent with that income instead of relying on student loans to cover your living expenses. Some folks may not have that option, however.

Unless you manage to live rent-free – with your parents or relatives, working as a residential advisor, etc. – paying rent is an unavoidable expense. If there are any ways you can minimize your living expenses while living on your own, then this will subsequently decrease the amount of student loans you need to take out for non-tuition expenses.  You should consider comparing rental prices in the area, commuting from a city with a lower cost of living, getting a studio instead of single bedroom, or other cost saving measures to help you from using student loans for living expenses.

Credit Card Debt

Check out current student loan interest rates. Even the unsubsidized loan rates are below 7%, which is significantly lower than the nationwide average credit card interest rate of 13% or average student credit card interest rates of 19.80%. I

f you have accumulated a sizeable credit card debt burden, then why pay off your balance at an exorbitant APR when you can subsidize your debt repayments with student loans? As long as there are no strings attached to your student loans – i.e., a requirement to only use the funds for educational expenses – you are free to pay down your high-interest debts with low-interest student loans.

Think of it this way. You’ll have to pay off the credit card debt no matter what. So, why not minimize the interest you’ll have to pay on the principal amount?

The one downside to this method is that you can expunge credit card debt through Chapter 7 bankruptcy, but most debtors will not free you from your student loan burden if you declare personal bankruptcy. These are extreme cases, but still worth considering if you want to pay down credit card balances with student loans.

Should You Cover Travel Expenses with Student Loans?

Travel is usually a non-necessity unless your degree requires a study abroad stint. So, using borrowed funds to pay for vacations is perhaps not the best idea for long-term financial stability.

All too often, less-financially-savvy students with money leftover from student loan payouts have a tendency to spend the extra funds on new electronics and cool spring break trips. Sure, traveling creates memories that will last a lifetime. But, is it worth having to pay back thousands of dollars on top of the cost of your degree itself later on?

With that being said, moderation is key if you want to pay for a trip using student loans. Some students travel during the school year using student loans then work long hours in the summer to pay back their student loans before interest racks up after graduation.

You shouldn’t miss out on a valuable opportunity to see the world while you still have a relatively flexible lifestyle as a college student, so aim for affordability and plan for a quick payoff instead of spending some of your student loans on multiple trips and worrying about the payoff process later when you have a “real job.”

Temporary Goods and Depreciating Assets 

A common bit of financial sense is that you shouldn’t pay for temporary goods such as food and drinks with credit cards because these comestible items don’t last very long. The interest you’ll be paying on the balance you gained through grocery purchases lasts longer than the goods themselves.

The same mantra applies to student loans. Unless you’re at risk of living on $0.30 ramen packets for every meal, it’s better to pay for groceries upfront with cash.

Drinks – especially the presumed college student staple of alcohol – are more frivolous expenses than food in terms of what you truly need. According to some sources, the average college student spends $600 per year on alcohol!

While an occasional night out with friends is crucial to the social side of your college experience, regularly dipping into your student loan funds to cover the cost of drinks should be avoided at all costs. You don’t want to have to pay off your partying expenses for years to come.

Other things to avoid paying for with student loans include depreciating assets such as clothes or a car. Again, if these items are necessities that you otherwise wouldn’t be able to afford without student loans such clothes to look presentable in the classroom and a car to commute to school it may make sense.

The best way to mitigate the long-term financial consequences of paying for depreciating items with borrowed money may be by finding affordable alternatives to your usual spending habits. This means shopping for clothes at Target or a thrift shop, and possibly selling your interest-accruing, depreciating car in favor of student carpools or public transportation. 

Student loans shouldn’t be restricted to tuition and fee payments alone if you have other necessary expenses to cover during college. Student loans for living expenses aren’t always a bad thing. However, to avoid amassing an insurmountable student loan burden post-college, you need to be strategic in how much money you take out and where you direct your funds.

What about you? Have you used student loans for living expenses? Was that a good choice in your situation? Or, did you spend your loan proceeds frivolously? 

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 581 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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