Paying Your Credit Cards With Student Loans


Student loans are supposed to be earmarked for academics, but can they also pay your Visa bill (Stock Quote: V) ? The answer is yes.

After covering $2,500 each semester for tuition at Baruch College in New York City, Jorge Bautista, 26, uses about $3,000 left over from his student loan to buy food and pay off some of his $10,000 in credit card debt.

It is no surprise Bautista is an accounting major: One of his credit cards has a 31% APR. The interest rate on Bautista’s $10,500-per-year federal Stafford loan is 6%.

And his payment strategy is perfectly legal, according to experts.

While federal student loans are limited to the cost of attendance, students get to use the money for living expenses once tuition and fees are taken care of, and college financial aid administrators have little oversight of how that money is spent, says Mark Kantrowitz, publisher of the financial aid site

Generally what happens is that the proceeds from a student’s loan are sent to their school, and any money beyond tuition and fees (and room and board, if the student lives on campus) is refunded to the student.

“While that money is supposed to be used to further their education, there really aren’t any requirements or controls that prevent a student from using their aid to buy a music CD, for example,” says Kantrowitz. “So long as the student is actually attending classes and actually making progress toward a degree, there is little that can be done to deny those students of those funds.”

The definition of “cost of attendance” is pretty flexible and includes books, supplies, transportation, computers and even child care.

“There’s no mechanism by which we would track what they’re using,” says Diane Lambart Fleming, associate director of client services for the office of scholarships and financial aid at Central Michigan University. “The safeguard is they have to be enrolled, they can’t get more than the cost of attendance and they have to make satisfactory progress to retain their financial aid status.”

Even if a student uses some of their federal loan to pay off credit card debt, they still have to buy food and pay their rent, says Edie Irons, a spokeswoman for the Project on Student Debt, a nonprofit based in Berkeley, Calif.

“Financial aid is designed to be used for a broad range of education-related expenses,” says Irons. “Whether a student spends their aid dollars on those specific items or not, they’re still going to face those costs. I think it’s not a priority for most colleges to police how students spend their money because it’s based on a recognition that they need help making ends meet.”

In the end, experts say, it is not a great idea to go shopping with your student loans. You have to pay it back eventually, and the government has the power to garnish your wages, deny the renewal of a professional license or withhold Social Security benefits if you don’t pay up.

“If a student is going to squander their financial aid money, they’re the only ones who are going to suffer,” Irons said.



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