Unused student loans? Here is the smart thing to do
You borrowed more than you need for college. What are you doing?
Many borrowers don’t realize they can pay off unused federal credits. Or why they would want it.
âI wish it was standard practice for students to return excess funds,â says Sara Cyrus, financial aid administrator in the financial aid office at the University of Michigan-Flint. “It helps long-term borrowers.”
Here are some answers to questions borrowers may have about unused credit.
Why should I end up with unnecessary loan money?
This can happen for several reasons. Sometimes students check all of the applicable boxes for loans on their financial aid offer, not realizing that they can choose only a portion of the money offered. Students also sometimes accept a federal loan in the hope of needing it, but later receive a scholarship or summer job.
Do I have to give back additional funds?
No, but be careful about how you use it. You can decide to use the funds for school-related expenses, such as books or supplies, or other expenses incurred during schooling, such as rent or food. You can also take the opportunity to adjust your borrowing needs for the next semester, says Wayne D. Kruger, executive director of financial assistance operations at St. Petersburg College in St. Petersburg, Florida. Some people use extra funds for things altogether. unrelated to the school, but it goes against the terms of the main promissory note they signed. While it can be tempting, don’t pocket the money and spend it on vacation or any other expense unrelated to school.
Why should I consider returning unnecessary loan funds?
While it may be tempting, pocketing the money and spending it on vacation or some other unnecessary expense isn’t safe. Consider the average student loan balance to be $ 38,792 last year – up from $ 35,620 in 2019 – according to Experian. Borrowing less, if possible, may be a prudent measure in the long run.
Additionally, there are caps on how much you can borrow as an undergraduate, per academic year, and cumulative. If you don’t need the money in a particular semester, you may want to return the funds so that they are then available in case you decide you need them later, for example to a summer term.
Will I owe interest or loan fees if I return unnecessary loan funds?
Typically, no interest or loan fees are charged on federal student loans that are returned (whether by the borrower or the school) within 120 days of loan disbursement, according to Federal Student Aid.
But that doesn’t mean you should wait that long.
Schools typically provide loans on behalf of the federal government in at least two payments, or disbursements, per school year. Ideally, you’ll want to cancel the loan before it’s disbursed, as it’s the easiest for everyone, says Brenda Hicks, director of financial aid at Southwestern College in Winfield, Kan. Schools have different deadlines for disbursing funds, the earliest being 10 days before the start of a semester.
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Even after a federal loan has been disbursed, you can still tell the help desk that you don’t want the money and the school must return it on your behalf within 14 or 30 days after sending it. the required notification of your loan cancellation rights. The amount of time you have depends on the process the school uses to obtain confirmation of loan acceptance before the funds are disbursed.
If you miss the school’s 14 or 30 day deadline, it’s always a good idea to assess the school’s willingness to repay the money on your behalf. Although they are not required to do so, many schools readily work with borrowers to return loan funds on their behalf within 120 days of loan disbursement. Most schools have a form that students can fill out to request adjustments to their aid.
However, 120 days after disbursement, students typically need to work with their loan manager to repay the funds directly, including any applicable interest or loan charges. Be sure to provide written instructions to the duty officer on how the funds are to be used, so that there is no confusion, says Karen McCarthy, director of policy analysis at the National Association of Administrators of Student Financial Aid.
Ms. Winokur Munk is a writer in West Orange, NJ. She can be reached at [email protected]
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