Can I Use Student Loans to Pay for Rent?

Facebook icon Twitter icon Print icon Email icon

By Benjamin Roussey

March 4, 2021

Yes, you can use student loans to pay for rent during college. Here are important things to know, in order to make the best use of your financial aid to cover both tuition fees and other living expenses. 

The FAFSA needs to be submitted on a yearly basis

To receive federal student loans, The FAFSA (Free Application For Federal Student Aid) form should be filled the moment you commit to go to college your senior year of high school. This is the application that allows the federal government to consider your case, and includes details like your parent’s economic background, your dependency status, and your academic and extra-curricular achievements. The federal government also considers inputs from your school, to determine the final student loan amount that you qualify for, during that academic year. 

This means that federal student loans are decided for the entire academic year, and need to be renewed on a yearly basis. This may also be accompanied by qualifying criteria to maintain your eligibility for the loan. (This typically includes enrolling for at least half-time classes each semester, maintaining a required GPA bandwidth, etc.) 

If you exhaust your federal student loan limits, you may consider borrowing private student loans. Federal student loans (from the government) are preferred over private student loans (from banks and private lenders) because they come with many perks, including:

  • Potential for subsidized loans
  • Potential for student loan forgiveness
  • Options to make payments based on your income and family size
  • Options to pause payments if you lose your job or have an economic hardship
  • Often federal loans are a lower interest rate

If you do wish to borrow private student loans, shop around to find the best lender for you.

Your college decides the cost of attendance

Every qualifying college determines the cost of attendance – COA – at the start of the academic year. This includes the total cost of attending full-term courses, for both on-campus students and day scholars. Accordingly, the COA includes your school fees, any additional enrollment fees, cost of room and board and meals provided by the college, costs associated with books, supplies and any other equipment required for your course, and other miscellaneous living expenses like groceries and housing supplies, transport expenses like fuel, bus/train tickets, etc. 

Federal student loads are capped based on the COA published by your college.

Student loans are disbursed to the college 

The government uses the above criteria to determine your loan amount. This is sent to your enrolled college, typically at the start of a semester. The college uses this to pay for the school fees first including room and board expenses as applicable, before transferring the rest of the money to your bank account. Then, it’s up to you to use your student loans to pay for rent. 

Keep rent low to reduce student loan debt

Some colleges offer an opportunity for students to be a Resident Assistant, which can come with free or discounted housing.

Many college students prefer to live on campus for 2 major reasons: cost and convenience. 

A typical college dorm comes furnished with a bed and desk (perhaps even a wardrobe), and includes basic utilities like electricity, water, heating, internet, etc. This works out much cheaper than off-campus living, as you total up expenses related to rent plus deposit, furniture, and monthly utilities. 

Also, an increasing number of schools include three daily meals for on-campus students. Besides being superlatively convenient, these costs are factored into your COA, making on-campus living a preferred choice. However, this means that the school will deduct these expenses from your student loan, and transfer the remaining amount to your account. 

If you prefer your independence and wish to live off campus, the school will deduct your enrollment fees (only), and transfer the remaining amount to your bank. Obviously, you get a higher chunk in your account, but the onus on managing your monthly expenses now rests with you. Here, you should know that it is very rare for federal student loans to cover both tuition fees and off-campus living expenses, for the entire semester. You should accordingly plan to substitute it with other options (like part time jobs, etc.), in order to be covered for the entire school year.

You can return the unused amount back to the government

Although need-based federal loans are subsidized by the government and come with a low rate of interest, they still need to be paid in full once you leave school. Keep this in mind as you rack up student loans to pay for rent and other expenses. 

For instance, consider that you were able to minimize your expenses mid-way through a semester, perhaps by taking on a roommate, or by picking up a job that includes meals. In this case, you may have an excess amount after the fees are deducted by the school. Rather than use it on non-urgent expenses, consider returning the amount back to the government. If this is done within 120 days, you incur no interest for the corresponding loan amount.

A good place to start:

See the best 529 plans, personalized for you