College students are blowing loan money on clothes, vacations and alcohol


Many college students take on big loans without really realizing what they’re getting into, and unfortunately, it very often leads to some pretty ugly financial consequences.

A big part of the problem is that a lot of student loan borrowers don’t understand exactly how their loans work, including the interest rates, how much they’ll owe after school, when to start paying them off, how to pay them off — the list goes on.

On top of the lack of understanding, there’s a new trend among college borrowers that’s even more alarming.

Read more: Plan to go to college next year? You need to fill out the FAFSA now! 

Alarming new behavior among student loan borrowers

According to a survey released by Student Loan Hero, more and more students are now using their education loans to cover excess lifestyle expenses.

Here’s a breakdown of the respondents’ answers when asked this question: in addition to tuition and educational costs, what are you using student loans to pay for?

worst way to use student loans pay for lifestyle bills

A whopping 40% of students said they would at least use loans to pay their monthly bills, including cell phone bills, car payments and insurance. 

But that’s not all — 15% of borrowers in college reported using loan money to pay for clothing and accessories, and 13% say they use it at restaurants. And for a small percentage of college students, educational loans are even funding vacations, drugs and alcohol. 

What are student loans supposed to cover?

Student loans are meant to help cover the ‘cost of attendance’ — also known as a ‘student budget’ — which includes education-related expenses published by each school. So when you sign the FAFSA, in order to get the loans, you agree to use the money to “pay the cost of attending an institution of higher education.”


Here are a few examples of these expenses:

Cost of Attendance:

  • Tuition and fees
  • Room and board (including off-campus housing)
  • Books and supplies
  • Transportation (cost of travel to/from school, but not for purchase of a vehicle)
  • Miscellaneous personal expenses
  • Cost of rental or purchase of required equipment, materials, and supplies
  • Personal computer (if enrolled at least half-time)
  • Dependent care expenses
  • Disability-related expenses
  • Loan fees
  • Licensing and certification fees for students enrolled in programs requiring the student to obtain professional licensure or certification
  • Reasonable costs associated with a study abroad program approved for credit at the student’s home institution
  • Expenses associated with a cooperative education program

Room and Board:

This part of your loan can include one of four options:

  • On-campus in housing that is owned or operated by the college
  • At home with parents (only applies to students without dependents)
  • In housing on a military base or for which a basic housing allowance (BAH) is provided (allowance restricted to board; room is excluded because it is already paid for)
  • Off-campus

Only borrow student loan money you absolutely need!

When it comes to student loans, once tuition is paid, there really are no rules regarding how any excess money is used — it’s up to the borrower. And considering all of the acceptable expenses listed above, in addition to a lack of financial awareness in general, it’s not surprising that students are using leftover money to pay for frivolous lifestyle costs.

So here’s what it comes down to: students either don’t understand the seriousness of student loan debt — or they don’t care. And both situations can lead to major long-term financial damage.

Read more: 6 student loan mistakes to avoid at all costs

One of the most important rules for borrowing student loans is to never borrow more than you plan to make in your first year’s annual salary after graduation.

So if you’re borrowing so much money that you have enough left over for excess shopping sprees and nights out at the bar, then you’re borrowing too much money. In addition, if you have to use a big chunk of student loans to cover car-related expenses, you very likely have a more expensive car than you can afford. 

The idea is to borrow only what you need, in order to avoid taking out more loans and racking up other debt, like credit card debt. Because the more you borrow, the more you’ll have to pay back — and apparently, that message hasn’t been made clear to a large portion of today’s college students.


Know your expenses and prepare for them

The survey also found that many college students don’t even know what their tuition will cost them next year –which means they have no clue how much money they will have to cover all of their other expenses. So at the last minute, the only way to cover bills is with extra student loan money.

It’s no secret that college is expensive, but that is exactly why students need to make smart decisions — to avoid over-borrowing and overspending to a point that it damages your financial life for years, even decades.

If you can reduce the amount you borrow in student loans to only what you absolutely need, it will make a huge difference in your overall debt when you graduate. And this applies to students who are already in college, as well as students planning to go next year.

When you take out student loans, it is crucial that you don’t borrow too much. If you’re going over that maximum amount of what you expect to earn your first year after school, then you might want to consider a cheaper college or finding other ways to bring in extra money.

How to avoid taking on too much student loan debt

There are a lot of ways for college students to not only make money during their four years of school, but also get help covering the cost of tuition — without taking out more student loans. Here are a few options to consider that can help you cover the cost of school as well as extra living expenses.

1. Scholarships

There are tons of scholarship opportunities out there based on a variety of qualifications — academics, athletics, cultural and community experiences, background, location, desired major or area of study, accomplishments and more. If you get creative, you’ll find a lot of options available for pretty much anyone. For example, football scholarships aren’t just for football players, some schools offer them to other members of the team like equipment managers. 

Here’s a guide on the best ways to find college scholarships.

2. Work study

Student employment through the university is a great way to help you fund your college expenses. The Federal Work-Study program offers job opportunities to full-time and part-time students at thousands of schools across the country as a way to help finance their education. The jobs offered may also fit with your particular area of study, giving you some extra experience. When you fill out for FAFSA, make sure to check the box that indicates you’re interested in student employment.

3. Get a job

Working on the side throughout school can be a great way to cover at least some of your expenses. It’s important to balance working with your academics, so if you’re someone who can make both work, then go for it! Check out local community websites and job boards for opportunities in the area.

And for some more ideas, here’s a list of the top-rated side jobs to make extra cash.


4. Employer reimbursement programs

I love Clark Howard’s story of how he got a job with IBM as a bill collector, because he knew they would help pay for his master’s degree. He had to pay for his books and maintain a B average, or he wouldn’t get the reimbursement. So he worked his tail off and had the cost of his tuition covered for his master’s in business management!

Today, there are tons of different employers offering similar options. Chipotle, Starbucks and Chrysler all recently announced expansions of, or additions to, their tuition reimbursement programs.

Starbucks will pay half your tuition for the freshman and sophomore years. If you make it to junior year, they then offer full tuition reimbursement for both junior and senior year. To qualify, Starbucks employees are only required to work a minimum of 20 hours a week; there is no minimum length of service time required to qualify. Perhaps best of all, there is no handcuff requiring you to stay with the corporation after graduation.

5. Choose the right school

The cost of college can vary a lot depending on the school. Choosing a school that’s better for your budget can save you a lot of money in the long run, so it’s important to do a little research. Find out what kind of financial aid different schools offer, as some provide aid based on need, some offer free tuition based on academics, and others are free altogether.

Public schools are typically cheaper than private colleges, and qualifying for in-state tuition at a state school can save you a lot. Plus, there are now ways to qualify for in-state tuition at an out-of-state school — usually by choosing a certain area of study.Here’s more on how to do that.

6. Go to community school first

Clark Howard is a big fan of the idea of starting out at a two-year community college and then transferring to a state or other bigger four-year school where you plan to graduate from. And when you think about it, have you ever heard someone ask where you started school?

You may not get the same sense of campus life when you go to a community college — like you would at a big public university — but you will get an education in what’s usually a more student-oriented environment than at a traditional college. Then after two years, you can transfer to a traditional school and end up with only two years to pay for — instead of four. 

Read more: Everything you need to know about student loans

3 rules of student loan borrowing!

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