How to Use Your Financial Aid Refund

Stephanie Olsen
Mar 17, 2021

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.

What exactly is a financial aid refund?

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. 

Who, where and when?

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. 

What to do when your refund’s late.

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.

Why did you get a financial aid refund check?

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.

college girl riding on her bicycle to class

Photo by @shanti via Twenty20

You don’t have to take the whole loan

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.”

What if you need more money after you've part of the loan down?

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.

What to do with your financial aid refund

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:

  • Use it to meet priorities (food, shelter, transportation).
  • Pay down high-interest debt first (like credit cards).
  • Keep some or all as an emergency fund.
  • Hold it for upcoming expenses you know are coming.
  • Return the refund (in whole or in part) to the Department of Education - it’ll be like you never borrowed that portion in the first place.
  • Make an in-school payment on your loan, if allowed, or apply against any private loans you might have.

What NOT to do with your financial aid refund

While it’s always tempting to take the money and run, there are certain things you should not do with your refund:

  • Definitely don’t go wild and spend it all on partying.
  • Forget about buying a new (unnecessary) wardrobe, but do buy necessary items, like a winter jacket or boots.
  • Remember how much interest adds up over time. Let’s say you use a $300 refund to pay for your daily Starbucks, and the interest rate on your loan is a very low 3%. By the time you repay your total loan some years after graduation, those coffees will have cost you about $345.
  • Don’t forget this isn’t free money. You will eventually have to repay this portion of your loan - with interest.