Watch Out for Excessive Loan Refunds

It’s the time of year when students eagerly await financial aid disbursements to their accounts. While it’s exciting to receive a refund from your federal student loan to cover indirect educational expenses, it’s crucial to remember the potential negative consequences of loan refunds on your future financial situation.

Students who have credit on their account from financial aid awards may receive a refund check from the Business within two weeks after a scheduled disbursement date. Most commonly, refunds result from large federal student loans or private loans. One of the more common reasons a student requires a refund is to pay for indirect educational expenses during their studies. Some students may reduce their work hours or eliminate working altogether to better focus on their educational studies. Other students may require a refund to cover other expenses, such as an off-campus apartment or rental property. Whatever the case may be, it’s critical that students who are receiving a refund from loans remember the following:

• Loans require repayment (and almost all interest).

Not only are you receiving a loan that requires repayment of the principal, but you are also accruing interest. Subsidized loans do not accrue interest during a student’s enrollment period or eligible deferrals. However, subsidized loans will begin to accrue interest when federal student loan repayment begins. Private student loans often have higher interest rates than their federal counterparts. The associated interest rates and the large principal balances can quickly turn the positive memories of loan refunds into a negative experience.

• Try to borrow only what you need.

The Financial Aid Office cannot deter you completely from receiving a loan refund. Students may receive a loan refund that covers their cost of attendance budget, which is the total amount it will cost you to go to school-usually expressed as a yearly figure. Wisdom dictates that you should try to borrow only what you need for school. Even if you still have room in your cost of attendance budget for a larger refund amount, think critically about what you need (and what you can forego in the interim as a luxury item).

• Research Alternatives

When it comes to constructing a financial aid package, there are numerous alternatives to federal student loans. You might qualify for federal work study, which allows you to work on or off campus for a college or university while earning wages. These wages can help cover indirect expenses you may incur as a student. Other options include state grants, part-time work, or adjusting your enrollment to balance full-time employment with part-time school. Exploring these alternatives can make you feel more in control of your financial situation.

While a loan refund can be a sensible option, especially for students with limited funding options during the academic year, it’s crucial to follow the tips outlined above to avoid excessive loan refunds that may hinder your future financial stability. If you’re unsure about the right loan refund amount, don’t hesitate to consult a Financial Aid Counselor who can provide detailed advice and review your options.