Is Using Student Loans to Cover Living Expenses a Bad Idea?

A bundle of 100 dollar bills with a wrapper labeled Student Loans sits on a graduation mortarboard, with the hat's tassle draped across the mon ey.
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Dear Penny,

I'm starting a two-year occupational therapy assistant program that is full time and year-round. I'm 32, and aside from three courses I’m currently taking as part of my associate degree curriculum, this will be my first stab at college.

I'm planning to live with a friend who has graciously agreed to only charge me one-third of her utilities in order to help me financially. My personal bills are about $300 per month, which brings my total monthly expenses to about $400 before living expenses.

While I do have some savings — about $5,800 — I was planning to use it to pay for the program out of pocket. Then, I’d take out a loan for two years of living expenses. I know myself, and I do not think I will be able to pull off working while in this program.

I am extremely worried about how much debt I'll be getting myself into with this plan and was wondering if you have any advice. Thank you so much!


Dear E.,

This is such an exciting time! Good for you — you’re making a big move for your education and career, while still considering the best way to manage the money details.

I’m also excited that you have savings ready to go as you prepare to focus full time on your studies. But I would encourage you to flip your thinking about how to use it.

Taking out a student loan with the idea of using it to pay for your living expenses is like writing yourself a blank check. Although you’re planning a frugal life with roommates and shared utilities, knowing your student loan money is there will be a temptation that will poke at you every semester.

You’ll be studying a lot, you’ll be tired and you’ll start treating yourself. A takeout meal here, a little splurge there. The mentality that you’ll pay it back later is a recipe for financial disaster.

Instead, I encourage you to do this: Take out student loans to pay for your coursework, books and supplies, with only a small cushion for financial emergencies or mandatory living expenses. Then, use your savings for the extra stuff, like food, clothing and general care.

If you know you’re spending the money you already saved on everyday expenses, you’re going to keep that in mind as you pay for things. It may be the same amount of money each month that you spend, but this mind trick will help keep you in line — and may encourage you to scrimp and save even more than you planned.

But don’t just fill out your Free Application for Federal Student Aid, accept a financial aid package and be done with it. Make an appointment to talk to a financial aid counselor at your school. These professionals have seen it all, including a teary-eyed, pre-column Penny who needed to figure out how to pay for graduate school after being laid off from her job.

The financial aid office will be able to review your financial aid offer and identify any additional grant or scholarship opportunities for which you may be eligible. And don’t just visit one time! Make it a routine to visit at least once each year you’re enrolled. Just as you’ll rely on your academic adviser’s guidance to succeed in your academic program, be sure to lean on the financial aid office, too.

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Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny.