You can use student loans for the costs of attending school, and nothing else. Federal law ties every allowable expense to your school’s “cost of attendance” — a defined budget that includes tuition, fees, books, housing, food, transportation, and a short list of related categories. That restriction applies to money your school sends straight to your tuition bill and to any leftover refund deposited in your bank account. Spend loan funds outside those categories and you risk having the full balance called due, losing future aid eligibility, or in serious cases facing criminal charges.
The Cost of Attendance Sets the Rules
Every spending decision traces back to one federal definition at 20 U.S.C. 1087ll. Your financial aid office builds a cost-of-attendance budget each academic year, and that budget both caps how much you can borrow and defines what the money is allowed to pay for.1Office of the Law Revision Counsel. 20 U.S. Code 1087ll – Cost of Attendance
The statute lists these allowable components:
- Tuition and mandatory fees
- Books, supplies, and equipment, including a personal computer
- Food and housing, on or off campus
- Transportation between home, campus, and work
- Miscellaneous personal expenses
- Loan origination fees
- Dependent care for student-parents
- Disability-related services, equipment, and assistance not covered elsewhere
- Professional licensure or certification exam fees for programs that require them
- Study abroad costs for programs approved by your home institution
If an expense doesn’t fit one of those categories, loan funds aren’t supposed to pay for it.2Federal Student Aid. How Much Money Can I Borrow in Federal Student Loans?
How the Money Reaches You
Your school receives the disbursement first and applies it to tuition, fees, and on-campus room and board. Anything left over is sent to you as a credit balance refund. That refund may feel like discretionary cash, but it carries the same restrictions as the money the school kept. You’re expected to use it for the same cost-of-attendance categories — rent, utilities, groceries, transportation, course materials — not for whatever you’d like.
What You Can Actually Pay For
Tuition, Fees, and Course Materials
Tuition and mandatory fees come off the top before you ever see a refund. Beyond that, loan funds cover required books, supplies, and specialized equipment your program demands: lab materials, art supplies, protective gear, a stethoscope, a camera, or anything else your department lists as a requirement.
The statute also includes a reasonable allowance for buying or renting a personal computer, with the amount set by your school rather than by federal law.1Office of the Law Revision Counsel. 20 U.S. Code 1087ll – Cost of Attendance Many schools limit computer purchases to once per degree program, so check before you buy.
Housing and Food
If you live in a dorm, the school typically pulls room and board from your disbursement the same way it pulls tuition. If you live off campus, your refund covers monthly rent and utilities like electricity, water, and heat. The housing allowance is based on either the average cost of institutionally owned housing or a standard off-campus figure.
Food is covered whether you use a meal plan or buy groceries. The statute provides the equivalent of three meals per day. Students living with parents still get a housing and food allowance, just a smaller one.
Transportation
Loan funds cover the cost of getting to and from campus: public transit passes, fuel, routine maintenance like oil changes and tires. The statute uses the word “transportation,” meaning commuting costs. Buying a car is not a listed component, so loan money shouldn’t go toward a vehicle purchase.
Childcare, Disability Expenses, and Health Insurance
A student with children can have a dependent care allowance added to the cost of attendance for childcare during class, study, and commute time. A student with a disability can have an allowance for services, personal assistance, adaptive equipment, and specialized transportation that other agencies don’t cover.3Federal Student Aid. Cost of Attendance (Budget)
Health insurance premiums fold into the tuition-and-fees component when the school charges the premium to all students carrying the same workload. A required student health plan is an allowable loan expense.
Licensure Fees and Study Abroad
If your program requires a professional license or first credential — a nursing license, CPA exam, bar exam — the cost of obtaining it can be included in your cost of attendance. Your school has to build those fees into its COA calculation, so confirm with financial aid before you register.
Approved study abroad is also covered, as long as your home institution accepts the program for credit. The same categories apply overseas: tuition, housing, food, and transportation at the foreign location.
What You Can’t Spend Student Loans On
Anything outside the cost-of-attendance list is off-limits. Common prohibited uses include:
- Entertainment and luxury items: concert tickets, vacations, designer clothing, electronics unrelated to coursework
- Investments and business ventures: stocks, cryptocurrency, or startup capital, regardless of potential return
- Existing consumer debt: credit card balances, car loans, or other personal debts
- Vehicle purchases: commuting costs are covered, but buying the car itself is not
- Prior-year expenses: a current-year disbursement cannot pay last year’s charges
The test is simple: if you can’t tie the purchase to one of the categories your school used to calculate your aid, it isn’t an authorized use. Federal regulations treat loan funds held by schools as money held in trust for educational purposes, and schools can’t let those funds be used as collateral or put at risk of loss.4Federal Student Aid. Requesting and Managing FSA Funds
Private Student Loans Follow Similar Rules
Private student loans aren’t governed by the federal disbursement rules, but they aren’t a free-spending workaround either. Federal regulations define a private education loan as one that covers “postsecondary educational expenses,” using the same cost-of-attendance categories from 20 U.S.C. 1087ll.5eCFR. Subpart F – Special Rules for Private Education Loans Individual lenders can also add their own spending restrictions in the loan agreement, and violating those terms can trigger default the same way misusing federal loans can.
What Happens If You Spend Loan Money the Wrong Way
Consequences range from administrative to criminal depending on what you did and why.
If your school or lender discovers that funds were misused, the lender can accelerate the loan — demand immediate repayment of the full balance — regardless of whether you’ve finished your degree. You could also lose eligibility for future federal financial aid.
Intentional fraud is punished more severely. Under 20 U.S.C. 1097, willfully embezzling or obtaining student aid funds by fraud carries a fine of up to $20,000, up to five years in prison, or both. For amounts under $200, the maximum drops to a $5,000 fine and one year of imprisonment.6Office of the Law Revision Counsel. 20 U.S. Code 1097 – Criminal Penalties Prosecution in practice tends to target borrowers who fraudulently obtained aid they were never entitled to or who diverted large sums systematically. Short of that, acceleration and lost aid eligibility are themselves serious enough to make careful spending worthwhile.
Returning Money You Don’t Need
If you were disbursed more than your qualifying expenses require, you can send the excess back. Before disbursement, contact your financial aid office to reduce or cancel the loan. After disbursement, return the funds to your loan servicer. If you do it within 120 days of the disbursement date, no interest or fees are charged on the returned portion. After 120 days, the return is treated as a prepayment and you’ll owe interest that accrued in the meantime.7Federal Student Aid. Can I Cancel My Student Loan? Every dollar sent back inside that window is a dollar you never pay interest on.