What Happens If You Have Leftover Student Loan Money?

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By Mark Kantrowitz

March 30, 2021

If you borrowed more than what you need, you can return the leftover student loan money to the lender to reduce the amount you owe. The college financial aid office can help you do this. 

You also have the option of keeping the leftover student loan money. But, like all student loans, the student loan will have to be repaid, with interest. So, it is best to avoid borrowing too much student loan money. 

No Prepayment Penalties 

Federal and private student loans do not have prepayment penalties, as a matter of law, so nothing prevents you from paying off the debt early. That includes repaying all or part of the student loan while you are still in school or during the grace period.

Use our Loan Calculator to determine the monthly loan payment and total payments on your student loans.

Impact on Interest

The federal government pays the interest on subsidized loans during the in-school and grace periods, so no interest should be owed on subsidized loans if you return them by the end of the grace period. However, you should prefer to return unsubsidized loans over subsidized loans, since unsubsidized loans do not have this interest benefit.

If you return unsubsidized federal loans within 120 days of disbursement, you will not owe any interest on the loans. After 120 days, you will owe the interest that accrued on the loans since they were disbursed, but it is usually a small amount.

On private student loans, interest accrues from the date of disbursement and must be paid even if you return the loans. 

See also: How Student Loan Interest Works

Keeping the Leftover Student Loan Money

You could keep the leftover student loan money for the next academic term or school year instead of sending the money back.

But, it is better to return the money if it is an unsubsidized federal loan or a private student loan. Returning the money will reduce the amount of interest you will be charged on the debt. You can borrow the money again when you need it.

The only reason why you might not want to return the money to the lender is if you are likely to reach the annual loan limits the next time you borrow. 

See also: How to Borrow Student Loans Responsibly

Plan Ahead to Avoid Extra Interest

Budget before you borrow, to avoid borrowing more than what you need. If you’re taking out a private student loan, be sure to shop around for the best interest rate.

Make a budget that lists all of your college costs, including tuition, fees, housing, meal plans, textbooks, supplies, equipment, transportation and miscellaneous expenses. Also, consider hidden college costs, which can add $300 to $500 per month. Subtract financial aid and how much you will spend from savings and income. The remainder is how much you’ll need to borrow to pay the college bills. 

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