A Student Aid Professional’s Best Advice for Minimizing Debt: Carefully Manage Aid Refunds

Paying Bills
Photo by Dave Dugdale via Flickr

By Brad Yeckley and Nick Dikas, World Campus Office of Student Aid

An article in US News and World Report titled “Undergrads Blow It With Student Loan Refunds” (July 24, 2013) features students who found themselves struggling to pay back high loan debts as a result of their student aid refunds. It’s important to know that doesn’t have to be the case — you can manage your refunds carefully to avoid academic problems and high student debt down the road.

How Student Aid Refunds Work

If your student aid exceeds your billable costs (tuition and fees) for a semester, you will most likely receive the excess aid as a refund around the start of classes. At World Campus, the Office of the Bursar initially sends refunds by mail, but you can sign up for Rapid Refund on eLion for faster delivery via direct deposit.

Once you receive your refund, you can use it to help pay for educational expenses that do not appear on your bill. These expenses may include:

  • Books
  • Housing
  • Child care
  • Educational supplies

If you spend your refund on expenses that are not related to your academic endeavors, you may be adding to your student loan debt unnecessarily. Additionally, when you accept federal student aid, you agree to immediately repay any funds that cannot be attributed to educational expenses.

What Is at Stake: Increasing Debt and Limited Aid to Complete Your Degree

When you get your refund, keep in mind:

1. On average, every $100 you spend now using student loan money will cost you about $200 by the time you’ve paid off your loans. Most Penn State students do not have enough gift aid (money that does not have to be repaid, such as scholarships or grants) to cover their bill. As a result, the students who receive refunds most often do so because of loans. This means that you will most likely need to pay back the money you receive as a refund, with interest.

2. There are limits to the amount of money that you can borrow in the pursuit of your degree. You can view your progress toward these limits with the National Student Loan Data System. If you are attending less than full time and you regularly receive large refunds each semester, you may run out of loan funds before you complete your degree program – and you will be stuck with all of your loan debt.

When you consider these two items together you can begin to see how unnecessary student aid refunds can both increase your debt and potentially disrupt your academic progress.

What You Can Do to Minimize Debt and Stay on Track Academically

Managing your loans and refunds carefully can help you avoid unwanted outcomes:

  • Determine your critical needs each semester and then decrease your loans so that you only receive a refund to cover these expenses. Since you will have to pay loan money back after you graduate, with interest, it is a good idea to live like a student and minimize your expenses while you are in school, so that you do not have to live like one after you graduate. You can decrease your loans on eLion by selecting “Financial,” and then “Loan Decrease.”
  • While you may use your refunds to help meet your basic needs, you should not depend on them as your sole source of income. If you do, any changes to your aid timing, eligibility, or amounts can put you at risk financially. It is important to have a plan to support yourself separately from your refund.
  • You might consider estimating and adding the cost of books for the upcoming semester to your refund for this semester. This allows you to buy your books for the next semester before it begins, instead of waiting for that semester’s refund to arrive after classes have begun.

Contact Us

If you would like to speak with an aid counselor about your individual situation, please contact us at 814-867-4244 or studentaid@outreach.psu.edu.