When Do You Get Financial Aid?
There is no denying it. The cost of higher education can become astronomical. Therefore, many students receive financial aid to assist. Many schools award financial aid packages for students who qualify based on their financial needs once they apply for financial aid. The money applies towards tuition, room and board, and other associated fees. However, you may receive a check if you have any unused financial aid money.
Sometimes, the package overestimates your total costs leaving you with a credit in your account. The school has a legal obligation to disburse whatever federal student aid is left over. So, they often send a check or direct deposit for the remaining amount. You will typically receive it after the add/drop period, which is usually about a month into the first semester.
Be wary though, because it isn’t free money. It is simply the amount available for you to borrow and will need to be repaid in the future, plus interest.
What Should You Do with Your Unused Financial Aid Money?
After the school has applied for all your approved funding, you may still have leftover money. So, what do you do with it? If you find yourself with a large amount of unused financial aid money, you have a few options.
1. Put it toward other educational expenses.
Not all your expenses will be included with your tuition and dorm fees. Many times you will find yourself buying additional equipment and supplies that you need for your classes. That’s why you receive financial aid. This money is intended to be used for student necessities such as textbooks, school supplies, computers, transportation, and child care. Although the school doesn’t automatically deduct these fees, most financial aid packages qualify them as educational expenses.
2. Use it for your living expenses.
Life as a struggling college student is hard. And, maintaining a full class schedule limits your job options, leaving little time for anything else. Therefore, you could use the leftover financial aid to cover your living expenses. Having the cash to cover rent, utilities, groceries, and medical bills can give you some breathing room and allow you to focus on your education.
3. Pay off other student loans.
If you had to accept subsidized student loans, then you are already accruing interest on the money you have borrowed. However, if you received additional unsubsidized funding, you could use the money to pay off loans with less favorable terms. Clearing these kinds of debts will save you hundreds, perhaps even thousands, in interest fees.
4. Transfer the funds into a dedicated personal account.
Another option is to transfer the unused funds into a personal bank account to use at a later date. That way, you have an emergency fund for any educational expenses or associated fees not covered by tuition.
Rather than sitting idle, putting the money into a high-yield saving account to earn interest while you decide whether to use it or pay it back. Or, whatever funds are left can be rolled over to the next semester. Not only does it keep your debt balance low, but also attempts to offset the high-interest rates on student loans.
5. Invest it.
With the same idea of putting your money to work for you, you may consider investing your unused financial aid money. Parking your funds in a 529 college savings account could earn you quite a bit of cash. Parents also like this option since the money can only be used for specified educational expenses.
6. Leave it in the school account.
If you don’t have an immediate need for it, you can view the money as an emergency fund. Even if you don’t withdraw it upfront, you can keep it as a safety net for any unforeseen expenses you may have later in the semester.
7. Turn down the money.
After reviewing your financial situation, you may decide that you really don’t need the money. If this is the case, you should probably consider turning it down. Similarly, you could claim a portion and decline the remaining amount.
Remember, this isn’t free money. There are still strings attached and loans to repay. This option will keep your student loan debt to a minimum and help you avoid accruing debt before you graduate. However, there is no need to make an immediate decision either. You have 120 days to decide if you want to cancel the loan to avoid interest rates on the unused money.
What Are the Tax Implications for Unused Financial Aid Money?
When you claim the overage check for your financial aid package, there are some tax implications you will need to consider. Since the IRS qualifies this money as income, you must claim it on your tax return. Furthermore, it could affect your FAFSA information and financial aid for the following year.
Therefore, keep records and track all your incidentals such as transportation, off-campus housing, and other optional equipment which is not required for your courses. And, you will also want to track how much you have earned for your services if you work on campus. Although your school will issue a tax receipt which you will need to include in your tax return, it’s always a good idea to have your own financial records.
So What’s the Best Option for Unused Financial Aid Money?
If you find yourself with a large amount of unused financial aid money, you have a few options. You may be tempted to spend it, but it is still borrowed money. So, act responsibly and think of the long-term consequences of your choices. You shouldn’t feel guilty about spending the additional money on things you need, but don’t put yourself further in debt than necessary.
Before you go on a spending spree, carefully consider your financial situation. And, be certain that you understand the limits of any scholarships and grants you receive. Some have specific terms that do not allow you to put the money towards your living expenses. It could also affect your future eligibility. So, be sure to check the fine print of your scholarship or financial aid to see how you can disburse your money. Make sure you understand what happens and talk with a financial advisor to help make wise financial decisions.