Sometimes nice things happen, like money just showing up in your bank account. If you’re a college student with loans, that gift is more likely a student loan financial aid refund and probably not an inheritance. And, no, it’s not free money for you to have fun with.
A financial aid refund is the remaining balance from your financial aid package after the total costs of the tuition and fees have been deducted.
This balance is returned directly to you. Usually, you’ll see your refund come in during the few couple of weeks of the new semester, but sometimes you’ll be halfway through the term before you see it.
Don't worry! If your account in your school’s online portal shows you’re entitled to a refund and haven’t received one yet, check with your school’s financial aid office. Remember that some schools require students to request overage payments, although most issue them automatically. However, all schools are required by law to disburse any excess Federal Student Aid money.
Calculating how much you’ll need for college isn’t an exact science. From your school's website, you’ll know approximately how much tuition, room and board, fees, and books will cost per year.
It’s the unanticipated that can mess up your plans: Your laptop suddenly dies and needs to be replaced; you drop courses and now you’re a part-time student living away from home; textbooks cost $500 more than expected. So you add a buffer to your loan request.
Remember that the overage is always loan money, never money from grants, scholarships, or other awards.
Of course, this means that the full amount of the student loan refund must be repaid, just like the portion that went directly to tuition and fees, with interest. Repayment of federal loans typically starts some six to nine months after you graduate. If you withdraw from college, however, repayment begins immediately.
If you’re interested, you can calculate your refund. Kankakee Community College has a nice example of how to do that. It’s written specifically for their students, but you can see how it works.
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Don’t worry if you’re offered more loan money than you need. Federal Student Aid puts it this way: “If you get your loan money, but then you realize that you don’t need the money after all, you may cancel all or part of your loan within 120 days of receiving it and no interest or fees will be charged.”
If you discover later in the year that you do need more money, talk to the financial aid office at your school. They can arrange to give you more loan money, according to the U.S. Department of Education.
When you get your refund, whether it’s large or small, you need to make a decision as to what you’ll do with that money. Here are some good ideas:
While it’s always tempting to take the money and run, there are certain things you should not do with your refund: