Whether you’re a student or a parent, or an individual applying for a student loan, you will more often than not come across the question – what happens to leftover financial aid money?
First, you need to understand what the term financial aid means.
What Is Financial Aid?
Financial aid is a funding system that is widespread in the United States to assist students with their post secondary education. This funding covers an array of expenses and is covered by different institutions and organizations.
However, to make avail of the financial aid, students need to first fill out a FAFSA (Free Application for Federal Student Aid).
Even though a varying options exist for financial aid, one of the popular ones is Federal Pell Grants.
What Happens To Leftover Financial Aid?
So, when you have an abundance of financial aid, while it might look like more money in the account, that’s not the case.
The point to understand here is that when there is leftover financial aid, the institutions often issue a refund cheque. This, however, is not a gift. This is the amount which is leftover from your financial aid package. Primarily, this is your financial aid refund disbursement.
It’s from this point onwards that you need to be aware of what you are doing with this excess financial aid. While most students look at the excess aid as more money, the reality is that if you spend it, you’ll have to return it. So, the second you accept the cheque and spend it on something that isn’t related to you earning the degree, you’re taking a bigger loan upon yourself.
It is quite tempting to take this money and use it for non-essential items. Unfortunately, since it’s not a gift, you might not want to stray in that direction.
Here are a few alternatives that you can consider for what happens to leftover financial aid:
If you don’t need it, do not accept it. It isn’t free money and when you attach the interest and repayment with it, it’s quite a hefty amount. Therefore, instead of over-borrowing, you can return it and keep your debt account low.
Moreover, you can return this excess financial aid to the loan provider. That way you’ve already gotten rid of a chunk of your student loan even before you graduate.
Don’t Take More Than You Need
Another option is to accept only what you need. It might be so you need a specific amount, so the best option is to only accept that amount.
When your institution sends over the award letter, take some time and figure out how much you genuinely need for essential purposes. Once you have figured that out, only accept that amount.
Keep It In Your Account
This is a good idea only for the current semester. Keep the money in your account only if you’re expecting additional charges during the semester. Once the current semester is over, return the money to the loan provider and her done with it.
However, it’s very important to not spend that money on anything else which isn’t related to your degree or school.
Spend It On Essential Items
If you have received the extra financial aid back, then a smart decision will be to invest it on school supplies. In fact, this is one of the reasons why you were assigned extra money in your financial aid package.
Some of the supplies include notebooks, stationeries, calculators, and even a computer (if you need it).
Transportation and Living Expenses
Another way to spend your extra financial aid is by availing services such as transportation (if you’re living off-campus). Driving yourself everyday can increase the cost given that there is gas, parking pass, and other miscellaneous expenses.
Therefore, using the extra money to use public transportation will end with you still having some money in the account.
On the other hand if you’re spending it on living expenses, make sure you’re budgeting. Otherwise, it can get out of hand very fast.
If you take into account meals, groceries, rent, utilities, and other charges, you’ll end up with an exorbitant amount of expense.
However, at the end of the day you need to make the decision which will benefit you. So, if you believe keeping it in your account is a better option, then do so. In this case, you absolutely shouldn’t use it for recreational purposes.
A great rule of thumb for this is – every time you think about what happens to leftover financial aid, remember that every dollar you spend now will end up with becoming a dollar being taken away from your future.