How can financial aid be spent?

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No matter what type of funding you've secured for your education, you need to know how you can spend it. See our collection of investing pictures.
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For some college students, managing the money they receive serves as their first experience in money management. With a little discipline and critical thinking, managing and spending financial aid will help students get the most out of their college experience without causing headaches later in life. But if students make poor choices, there can be nasty consequences.

There are many types of financial aid: Scholarships, grants and loans are the most common. These types of aid come from different organizations. Students might apply for a scholarship directly from their own college. Alternatively, they might seek aid from a private organization that sets aside funds to help students. Private lending institutions arrange loans, which must be paid back later with interest.


Many of these organizations place restrictions on how the financial aid dollars they provide can be spent. In some ways, this may be beneficial to the student -- it eliminates the possibility that the student will mismanage the money. Common restrictions include using the money only to cover tuition, books, and room and board.

Many colleges will deduct automatically the cost of tuition from any financial aid they extend to students. The students never receive a check. Instead, they won't have to worry about paying a tuition cost. Several colleges follow the same procedure for on-campus housing. The student's financial aid money goes to cover the expense of staying on campus. On the positive side, the student never has to worry about paying the college. But it also means students don't have the opportunity to learn how to manage a budget.

Another common program among colleges and universities is a book credit. Some institutions give students a card similar to a credit card that's only valid within the school bookstore. Students can use these cards to buy textbooks, which tend to be expensive.

There are, however, situations in which a student will receive a check as part of financial aid. We'll take a look at these situations next.



Extra Financial Aid Money and Loans

Some schools give students more freedom -- and more responsibility -- to manage their costs with financial aid. The students are supposed to use the money from financial aid to cover expenses such as tuition, books, transportation, and room and board. But if the student chooses to spend the money elsewhere, he or she will encounter problems later on once there are bills to pay.

Many schools limit the amount of financial aid any single student can receive. This prevents a student from receiving more aid than what is necessary to pay for a college education. But students who win grants and scholarships from multiple sources may find themselves in possession of more money than they need for basic costs.


It's a big mistake to dedicate this money to short-term desires. Using financial aid money to cover costs unrelated to school can lead to trouble down the line. This is particularly true for student loans.

Recipients of student loans must repay the loan with interest. Many student loans have a grace period of six months after graduation before requiring the student to begin payments. Because the student must pay the loan institution more money than what he or she received as financial aid, it's best to restrict the size of the loan request to the bare minimum. Larger loans will be harder to repay.

For that reason, it's not a good idea to spend loan money on non-necessary expenses. If you receive more money than what you need to cover your school costs, it's a good idea to put the extra money toward repaying the loan.

Students should create a spending plan and stick to it. The plan should take into account when the student will receive money through financial aid and other sources, and it should also include necessary expenses plotted out through the course of the year. This will help the student stay ahead of financial obligations and avoid falling into the trap of spending money on frivolous things.

Financial aid can be difficult to secure. Once you do receive financial aid, be careful to spend it wisely on what matters most.

For more on financial aid and other related topics, take a look at the links on the next page.


Lots More Information

Related HowStuffWorks Articles

  • Clark, Kim. "Students Make Costly Mistakes With Financial Aid." U.S. News & World Report. July 29, 2008. (Jan. 6, 2010)
  • Humboldt State University. "Frequently Asked Questions." (Jan. 6, 2010)
  • Pappano, Laura. "The Fallout." New York Times. Dec. 23, 2008. (Jan. 6, 2010)
  • Vazquez, Jose. "So You Got Your Financial Aid, Now What?" Young Money. May 29, 2005. (Jan. 4, 2010)