I personally know a few friends who spent their student loans on financing their spring breaks or using it as an investment for their cars. Most of them ended up having to leave college without getting their degree, with a big student loan to pay off.
Student loans are meant to pay for your college education. Depending on your loan type, you might be getting the entire amount of loan on your bank account or the amount left over after paying all the student expenses. In both cases, you will be left with a small amount of extra money from your student loan.
In whatever way you come across your student loan money, spend it wisely in the following ways:
Use Them in College Related Expenses
When you are studying, there are so many expenses that spring that you might not have anticipated when applying for student loans. College-related expenses include:
- Tuition and fees. The biggest chunk of your college fund will go into paying your actual college tuition and other fees. However, you might also need extra tuition to deal with particularly difficult topics.
- Room and board. When you start college, you have two options. Either to avail campus housing or to rent an apartment outside. Before choosing any option, review the pros and cons of each. If you choose to rent an apartment, consider the extra cost. You will be paying for all utilities on your own. Transportation cost will also likely increase.
- Books, and supplies. All your books and supplies are paid for by your student loan.
- Personal computer or laptop. When studying, a laptop is almost a necessity. If your student loan allows it, invest in the best. Get a Mac Book to last you entire the college. Remember, a cell phone or any other gadget is a grey area and might not be allowed on your student loan.
- Your student loan covers your all college-related transport costs. If you have your own car, the student loan pays for the gas bills. Otherwise, money for your bus tickets comes from your student loan. A spring break with college mates isn’t counted in this.
Pay Off Your Student Loan
Your student loan isn’t normally due until six months after you graduate. But that doesn’t mean you can’t start paying off the loan before that. Find out the terms of your loan by contacting your lender or bank. Request if you can pay back the student loan from the extra cost. Paying your loans earlier than expected offers you a financial advantage. Your lender will likely offer you a lower interest rate when you do that.
If paying off isn’t possible early, you can open a saving account. Start putting the extra money into the saving account every month. When the time to pay off your loan comes, you get to use your savings account to pay them off. This can be helpful if you want to take a break after your college and don’t intend to start a job immediately.
Choose a high yield saving account. Your average saving account offers you an interest saving rate of around 0.09%. With a high yield saving account, you can get a return of more than 2%. However, a high yield saving account limits your withdrawals to less than 7 times annually. This means you won’t be taking out money frequently. This could be a good thing, seeing that you won’t be likely to spend that money in the wrong places.
Invest Your Student Loan
Whether you can invest your college funds, or not depends on the type of your student loan. You should check this with your loan officer before you consider this option.
If you can, then investing your student loan is a smart decision. Your student interest loan is offering to you at an interest of 3.86%. The average rate of return in the stock market in the last few decades has been 7%. This means you can earn a neat profit through investment, and pay off your student loan very easily.
A good option is to invest in mutual funds or index funds. Don’t get too excited and stay away from individual stocks since there’s a great risk with these.
Don’t Misuse Your Student Loan
When you have extra cash lying around with you, there’s a good possibility that you might be tempted into spending them elsewhere. Many college students use their student loans in non-educated related expenses. This could lend you in trouble, both legally and financially. As mentioned before, a good way to avoid this is to create a savings account.
Don’t spend your Student loan money on:
- Gym Memberships
- Luxury Shopping
- Concert Tickets
- Sound system for your dorm
- A new car
- Drinks or food for a party
- Business expenses
- Emergency expenses.
Need a student loan? Check student loans from SunTrust to learn more about student loans.