Can Student Loans Be Used for Living Expenses?

Yes, student loans can be used for living expenses. Federal law builds that assumption directly into the Cost of Attendance formula, which sets how much you can borrow and specifically includes allowances for housing, food, transportation, personal costs, and other day-to-day expenses beyond tuition.¹ The real questions are what counts as a living expense, how much of your loan is actually left for those costs after tuition, and what obligations you take on by spending the money.

Which Living Expenses the Law Allows

Your school’s financial aid office calculates a Cost of Attendance (COA) figure for one academic year. Federal law defines the categories that can go into that number, and your total aid cannot exceed it. The school sets the dollar amount for each category based on local conditions, so the same expense may be funded generously at one university and barely covered at another.

The COA includes a housing and food allowance whether you live in a campus dormitory, rent off campus, or stay with your parents. For on-campus housing, the allowance is based on the average or median amount the school charges residents, whichever is higher. For off-campus students, the school sets a standard rent allowance. Students living with parents still receive a housing component, though it’s smaller.¹ The food allowance covers the equivalent of three meals a day, through either a campus meal plan or grocery purchases.

Beyond housing and food, the COA covers:

Books, supplies, and equipment required for your courses, including a reasonable allowance to rent or buy a personal computer you use for coursework.²
Transportation between campus, home, and your workplace, which can include fuel, parking, and transit passes.¹
Miscellaneous personal expenses such as laundry and toiletries, available only if you’re enrolled at least half-time.¹

The school sets each allowance, not you. If the aid office estimates $800 a month for off-campus rent and your apartment costs $1,200, you can’t borrow extra to cover the difference. The COA is a ceiling. The only way to change it is to request a professional judgment adjustment from your financial aid office with documentation showing unusual circumstances.

Allowances Many Borrowers Never Hear About

Some COA categories exist but don’t get advertised, and you may need to ask about them directly.

Students with children can have dependent care costs folded into their COA. The allowance covers actual childcare during class time, study hours, fieldwork, internships, and commuting, based on the number and age of your dependents and what’s reasonable for your area. Schools are required to mention this during aid counseling, but in practice many students never hear about it.²

Students with disabilities can receive an allowance for disability-related expenses not already covered by other agencies, including specialized equipment, personal assistance, and adaptive transportation.²

If your program requires professional licensure or certification, the COA must include the costs of obtaining that credential, including exam fees, application costs, and retake fees if your school allows them. The costs have to be incurred during a period of enrollment, not after graduation.³

How Much Is Actually Left for Living Costs

The COA is a ceiling for your total aid package, not a guarantee of how much you can borrow in federal loans. Many students assume a $30,000 COA means $30,000 in loans, then find out their actual cap is far lower.

Annual limits for Direct Subsidized and Unsubsidized Loans depend on your year in school and whether you’re classified as dependent or independent:⁴

Dependent undergraduates: $5,500 first year, $6,500 second year, $7,500 third year and beyond.
Independent undergraduates: $9,500 first year, $10,500 second year, $12,500 third year and beyond.
Graduate and professional students: $20,500 per year in Direct Unsubsidized Loans only, since graduate students are no longer eligible for subsidized loans.

These limits cover tuition, fees, and living expenses together. After tuition is deducted, what’s left for living costs can be modest. A first-year dependent student at a school charging $4,000 in tuition would have roughly $1,500 of federal loan funds for an entire year of housing, food, and transportation.

Lifetime aggregate caps apply as well: $31,000 for dependent undergraduates, $57,500 for independent undergraduates, and $138,500 for graduate students including any undergraduate borrowing.⁵

Parent PLUS and Grad PLUS Loans work differently. They have no fixed annual or aggregate dollar cap. A parent or graduate student can borrow up to the full COA minus other financial aid received.⁶ That flexibility makes PLUS Loans the main tool for covering living costs that standard Direct Loans can’t reach, but it’s also how PLUS balances pile up quickly.

One quiet detail about the loan portion that funds your living expenses: it’s often unsubsidized, meaning interest starts accruing the day the money is disbursed. Over four years, interest on money you spent on rent and groceries can add thousands to your balance before your first payment.

What Loan Money Cannot Be Spent On

The rule is simple. If a cost isn’t part of the COA, loan funds aren’t supposed to cover it. The federal handbook makes clear that only costs listed in the statute may be included, and anything else is off limits.⁷ Nobody audits your grocery receipts, but the following sit clearly outside the boundaries:

Vehicle purchases. The transportation allowance covers operating costs for getting to school, not buying a car or motorcycle.⁷
Vacations and leisure travel unconnected to your program.
Business investments or startup costs.
Clothing, except when a program specifically requires it, such as nursing scrubs or lab protective gear.
Entertainment: concerts, streaming subscriptions, and restaurant meals beyond basic nutrition.

The practical risk sits at the extremes. Using a large chunk of loan money to buy a car, fund a vacation, or invest in crypto directly contradicts the agreement you signed, and in those cases the exposure is real.

How the Money Actually Reaches You

You never receive the full loan amount directly. The Department of Education sends the money to your school, which first applies it to tuition, fees, and on-campus housing if applicable. Anything left becomes a credit balance on your account. That credit balance is your living expense money, and federal regulations require the school to release it to you within 14 days: the clock starts the day the credit balance appears if that’s after the first day of class, or 14 days after the first day of class if the balance existed earlier.⁸ Most students receive the refund by direct deposit or check.

You Choose How You’re Paid

If your school partners with a bank or financial company to offer student debit cards or accounts for refund delivery, federal rules protect you from being pushed into that arrangement. The school must present your existing bank account as the first option, cannot preselect any account for you, and must make direct deposit to your own bank just as fast and easy as using the school-affiliated account.⁸ You can change your selection at any time. A school-affiliated account cannot charge you fees to open it, cannot function as a credit card, and must provide free ATM withdrawals within a surcharge-free network.

Summers and Breaks

Living expense funding stops when enrollment stops. Costs cannot be included in your COA for any period when you’re not enrolled and not engaged in a required activity for your program. Skip a summer session or intersession, and no loan funds will cover rent or food during that gap.² If you sign a 12-month lease, your fall and spring refunds have to stretch through summer when you don’t enroll.

If You Withdraw, You May Owe the Refund Back

This is the piece that catches students by surprise. If you withdraw from all classes before completing 60 percent of the payment period, a federal formula called Return of Title IV Funds determines how much of your aid you actually earned. The earned percentage equals the percentage of the enrollment period you completed. Drop out after three weeks of a 15-week semester and you’ve earned 20 percent of your aid.⁹

The unearned portion has to be returned to the federal loan programs. The school returns its share first, but you may owe a portion too. The painful part: if you already spent your living expense refund, you still owe it back. The refund you used on rent and groceries counts as disbursed aid in the calculation, and there’s no exemption for money already spent.¹⁰ For loan funds, you repay under the loan’s normal terms. For grant overpayments, you may owe up to 50 percent of the grant amount back.

Once you’ve completed more than 60 percent of the enrollment period, you’re treated as having earned 100 percent of your aid and the return calculation doesn’t apply. If you’re considering withdrawing mid-semester, the timing is financially significant.

What You Agreed to When You Signed

Before receiving federal loan funds, you signed a Master Promissory Note (MPN). It includes a certification, signed under penalty of perjury, that reads: “I will use the loan money I receive only to pay for my authorized educational expenses for attendance at the school that determined I was eligible to receive the loan, and I will immediately repay any loan money that is not used for that purpose.”¹¹

The “under penalty of perjury” language is doing real work. A borrower who diverts large amounts of loan money to clearly unauthorized purposes risks having the loan declared immediately due and being referred for collection, and in extreme cases of deliberate misuse, fraud exposure. The MPN also makes clear that you owe the full amount plus interest regardless of whether you finish your degree or find a job.

Private Loans and Taxes

Private student loans operate under the lender’s contract rather than federal statute. Before a private lender can finalize your loan, federal law requires you to complete a self-certification form showing your school’s COA, estimated aid from other sources, and the gap between the two.¹² Private lenders generally allow funds to be used for the same categories of COA expenses, but the restrictions, repayment terms, and penalties for misuse are governed by the loan contract. Private loans also lack federal protections like income-driven repayment.

On the tax side, loan proceeds aren’t taxable income, since you’re obligated to repay them. That applies whether you use the funds for tuition or living expenses. Interest you pay on student loans after leaving school may qualify for a deduction of up to $2,500 per year, and this deduction covers interest on money borrowed for living expenses, not just tuition. The IRS definition of “qualified education expenses” for the interest deduction includes room, board, transportation, and other necessary costs, and the deduction phases out at higher incomes. Education tax credits work differently: the American Opportunity Tax Credit and the Lifetime Learning Credit only apply to tuition, fees, and required course materials, not to room, board, or transportation.¹³

1
Office of the Law Revision Counsel. 20 USC 1087ll – Cost of Attendance
2
Federal Student Aid. Cost of Attendance Budget – 2025-2026 Federal Student Aid Handbook
3
Federal Student Aid. Cost of Attendance Budget – 2024-2025 Federal Student Aid Handbook
4
Federal Student Aid. Annual and Aggregate Loan Limits – 2025-2026 Federal Student Aid Handbook
5
Federal Student Aid. Annual and Aggregate Loan Limits – 2024-2025 Federal Student Aid Handbook
6
Federal Student Aid. Direct Loan Periods and Amounts
7
Federal Student Aid. Cost of Attendance Budget – 2023-2024 Federal Student Aid Handbook
8
eCFR. 34 CFR 668.164 – Disbursing Funds
9
eCFR. 34 CFR 668.22 – Treatment of Title IV Funds When a Student Withdraws
10
Federal Student Aid. General Requirements for Withdrawals and the Return of Title IV Funds – 2025-2026 Federal Student Aid Handbook
11
Federal Student Aid. Master Promissory Note – Direct Subsidized Loans and Direct Unsubsidized Loans
12
Office of the Law Revision Counsel. 20 USC 1019d – Self-Certification Form for Private Education Loans
13
Internal Revenue Service. Publication 970, Tax Benefits for Education