Peer Advice: What to do With Your Student Refund Check

The start of every new school year means a lot of students look forward to their financial aid disbursing – but for all the wrong reasons. The infamous refund check, the check handed over to students after aid is applied to their account, leaves many saying “I can’t wait for school to start again so I’ll get a refund check and actually have some money.” What they don’t always realize is what that refund check really is.

A refund check is money that is directly given to you from your school, but it’s not a gift. It is the excess money left over from your financial aid package after your tuition and fees have been paid. But where is this money coming from – grants? Scholarships? Not quite.

Schools use “gift aid” first to pay your tuition and fees, so grants and scholarships are exhausted first. So for most students, that means a refund check is leftover student loan money… That means the money in that refund check will need to be paid back in the future, and could be accumulating interest from the time that check makes its way into your eager hands. However, this doesn’t mean you shouldn’t use it if you need it, either. Some students use their refund checks to purchase education-related items like books, laptops, or other program essentials – items your student loans were intended to cover.

However, it can be really tempting to use that extra money to enjoy some non-essentials.  And by that, I mean anything that doesn’t directly contribute to your academic success. Too many students spend their student loan refunds on trips during breaks, new clothes, and dorm decorations. While these costs all might be associated with what you consider the “college experience,” they are not essential for helping you earn that degree.

As an alternative to spending that refund check without care, I offer some suggestions for when you find yourself with more financial aid than you need:

  1. Give it back. Here’s a thought – if you really don’t need the extra cash, don’t take it! It’s not free money when interest and repayment are attached, so if you’ve over-borrowed, you can give the money back and keep that debt balance low. Or maybe you decide you only need half of your refund check to cover the cost of your textbooks, and the rest can be returned. You can pay some or all of your refund right back to your loan servicer as soon as you want and ta-da! You’re rid of a chunk of your student loans before you graduate.
  2. Only accept what you need. Alternatively, you can choose to avoid temptation altogether by only accepting the amount of money you need to cover your tuition and fees. That’s right, YOU get to decide how much financial aid money you want to accept – and it doesn’t have to be every single dollar that’s awarded to you! When your school sends you your award letter, look over your expected costs to determine how much you truly need to borrow, and how much you can decline.
  3. Hold the money in your account. But only for the current semester. Maybe you are expecting to have some additional charges throughout the semester. Holding onto your refund is a good safety net for extra costs, but once the semester is over, give the excess money back to your servicer so you don’t spend it on anything non-school-related (and try to pay any interest that may have accumulated while you were holding onto that money).
  4. Spend it on books or school supplies. Part of the reason you were given extra money in your financial aid package was to cover other school-related costs outside of tuition, so this is a worthwhile expense for your refund if you need some help. Supplies might include notebooks, calculators, or even a computer if you absolutely need one.
  5. Spend it on transportation. If you live off-campus, it might be costing you to get to class. Whether you have to take the bus or drive yourself, this every day travel expense can get pricey, especially if you have to buy a parking pass, too. Calculate how much it will cost you to get to campus and to park there (if necessary). Budget that chunk of your refund and don’t overspend on parking meters and excessive trips.
  6. Spend it on living expenses. This expense can get out of control (think swanky loft in the trendy district), so keep it in check and make sure you’re not wasting your money. Whether you live on or off campus, housing is expensive. Rent, groceries, meal plans, utilities, insurance, and other charges can add up to a big chunk of your monthly payments. Make sure you’re still budgeting and only paying for what you absolutely need, and your housing cost can be justified as school-related, too.

Don’t feel guilty if you have to spend your refund on school-related items. You were offered this amount because your school thought you might need it. Just go into it with eyes wide open, knowing that you every dollar you borrow today is taking away from your future financial independence. Managing your refund checks while in school is a great exercise in learning to live within your means, and remember – don’t keep it if you don’t truly need it.