Student loans can be used for any expense your school includes in its official Cost of Attendance: tuition and fees, books and supplies, housing and food, transportation to and from campus, dependent care while you’re in class, and disability-related costs. When you sign your Master Promissory Note, you agree to spend the borrowed money only on those education-related categories. Anything left after your school deducts its charges comes to you as a refund, and it’s expected to go toward the same list. Spending it elsewhere puts you in violation of the loan agreement, and in serious cases it can lead to federal fraud charges.1Federal Student Aid. Direct Loan Master Promissory Note
The Categories Your Loan Is Allowed to Cover
Federal law defines Cost of Attendance as the full price of participating in your program, and your school uses that definition to build your financial aid budget.2Office of the Law Revision Counsel. 20 USC 1087ll – Cost of Attendance The categories are broad enough to cover most genuine school-related costs:
- Tuition and fees your school charges for enrollment, registration, and course participation.
- Books, supplies, and equipment, including textbooks, lab materials, art supplies, software, and a personal computer if your coursework calls for one.
- Housing and food. That means on-campus room and board, or off-campus rent, utilities, and groceries. For off-campus students, your school sets a food allowance based on an estimate equivalent to three meals a day.
- Transportation to campus or internship sites: bus passes, gas, parking, and routine vehicle maintenance. Buying a car is not included.
- Dependent care during class, study time, fieldwork, internships, and your commute.
- Disability-related expenses such as assistive technology, personal assistance, and specialized transportation that other programs don’t cover.
Your school decides the specific dollar amounts for each category, so two students at different institutions can have very different Cost of Attendance figures even when their actual spending looks similar. What matters is that your spending falls within these categories, not that it matches your school’s estimates to the penny.
Buying a Computer for School
The Cost of Attendance statute includes a reasonable allowance for buying or renting a personal computer. A standard laptop or desktop that supports your coursework qualifies. A high-end gaming setup does not, because the allowance is meant for academic tools rather than entertainment equipment.2Office of the Law Revision Counsel. 20 USC 1087ll – Cost of Attendance
Study Abroad
Federal student loans can pay for a study abroad program, but only if your U.S. school participates in federal aid programs and approves the arrangement. Contact your financial aid office early. The paperwork involves coordination between your home school and the overseas institution, and deadlines can be tighter than a regular semester.3Federal Student Aid. Aid for International Study
What Student Loans Cannot Pay For
The line between allowed and not allowed is simpler than people think: if the expense doesn’t connect to attending school, it’s off limits. Common prohibited uses include:
- Investing or starting a business. Putting loan money into stocks, crypto, or a side venture violates the loan agreement.
- Buying a vehicle. Gas and maintenance on a car you already own count as transportation. Purchasing the car does not.
- Vacations and recreation. Spring break trips and concert tickets are personal spending.
- Paying off pre-existing debt. Using loan funds to clear credit card balances from before the semester is not an authorized expense.
- Luxury purchases. Designer clothing, gaming consoles, and expensive electronics unrelated to coursework fall outside your Cost of Attendance.
The consequences scale with the severity. Spending a few hundred dollars on something questionable probably won’t end in a courtroom, but it still violates your loan agreement, and your lender can demand immediate repayment of the entire balance. For deliberate fraud involving federal funds, the penalties get serious quickly: fines up to $20,000 and up to five years in prison, or for amounts under $200, fines up to $5,000 and up to one year.4Office of the Law Revision Counsel. 20 USC 1097 – Criminal Penalties
How the Money Reaches You
Your lender sends the money to your school, not to you. The school applies the funds to your account in a set order: institutional charges like tuition and fees come off first, followed by room and board if you live on campus or use a university meal plan. Scholarships and grants are credited before loan proceeds, so loans fill the remaining gap.
Before your school can apply loan funds to anything beyond tuition and mandatory fees, you have to provide written authorization. Federal regulations prevent your school from requiring or pressuring you into signing, so you have a real choice about which additional charges the school pays automatically from your aid.5eCFR. 34 CFR 668.165 – Notices and Authorizations
The school also verifies that you’re enrolled at least half-time and meeting academic progress standards before releasing funds. If something is wrong with your enrollment status, disbursement is held until you fix it.
Your Credit Balance Refund
Once your school deducts all campus charges, whatever remains is your credit balance refund. This is the money you use for off-campus rent, groceries, books from outside vendors, transportation, and other education costs the school doesn’t bill you for directly.
Federal rules give your school a hard deadline: the refund must reach you within 14 days. If the credit balance appears after the first day of class, the 14-day clock starts from the date the balance was created. If it appears on or before the first day of class, the clock starts from the first day of class.6eCFR. 34 CFR 668.164 – Disbursing Funds
Most schools offer direct deposit, which is fastest. Paper checks are available but take longer. Set up your preferred delivery method through your school’s bursar office or student portal before the semester starts so you’re not scrambling for rent money while waiting for a check in the mail. Some schools also partner with financial service providers that offer student-specific accounts for receiving refunds.
If Your Refund Is Bigger Than Your Actual Costs
This is the most underused option in student borrowing: if you receive more loan money than you need, you can send it back. Every dollar you return is a dollar you won’t pay interest on for the next 10 to 25 years.
You have 120 days from the disbursement date to cancel all or part of a loan without being charged any interest or fees on the returned portion. After 120 days, you can still return the money to your loan servicer to reduce your principal balance, but you’ll owe any interest that accrued in the meantime.7Federal Student Aid. How Do I Cancel My Loan Before Its Disbursed
To return funds within the 120-day window, contact your school’s financial aid office or your loan servicer. To make a principal payment after that window, contact your servicer and specify that the payment should be applied to principal, not counted as a future monthly payment.
Keep Records of How You Spent It
Financial aid offices occasionally audit how students use loan proceeds, and documentation turns a stressful inquiry into a quick resolution. Save receipts for textbooks, supplies, and equipment. Keep copies of your lease and rent payment records. If you bought a computer for school, save the invoice.
Digital copies work fine. A folder on your computer or a cloud drive is enough. You don’t need to account for every cup of coffee, but you should be able to show where the bulk of your refund went if anyone asks. Hold on to these records at least until the loan is fully repaid.