Loan refunds: Spend on spring break or rent?

Financial responsibility is important when choosing how to spend a refund check.

Holly Miller

For many college students, a student loan refund check for a few thousand dollars just came in the mail.

Now comes the big decision: to spend the extra cash on rent, or take a trip to somewhere warm and exotic like Costa Rica.

Masha Kushnir, a communications senior, chose both.

student loan repayment

-$20,000 (average debt of college student.)
-6.8% (average interest rate for a loan.)
-On a 10-year repayment plan: $230 monthly cost after graduation. Total paid back with interest: $27,600.
-On a 20-year repayment plan: $153 monthly cost after graduation. Total paid back with interest: $36,600 (up $16,600.)

Kushnir is one of many students who recently received a loan refund – money a student gets back from the University if he or she has paid more toward the tuition bill than total costs due.

Beyond paying for school and housing, Kushnir said she has used her refund money to go shopping, pay for trips to Costa Rica and California and for expenses during her semester abroad in Argentina.

“I don’t want to ruin my college experience by worrying about finances now,” she said.

Jennifer McNabb, a fourth-year medical student, said putting loan money toward trips for educational purposes, like study abroad programs, is warranted, but trips to party with friends is a different story.

“Spending loan money on excessive partying or shopping is not very wise financially,” she said, “but a splurge here or there isn’t going to lead to financial ruin.”

Taking out student loan money exceeding the cost of tuition is common, but not all students spend it wisely.

Mark Kantrowitz, publisher of finaid.org, a student financial aid information Web site, said there is a lot of room for students to borrow more than they need for school expenses, but taking advantage of that opportunity isn’t the best idea.

“Every penny of (the loans) plus interest will need to be repaid,” he said. “It is best to minimize that figure.”

McNabb said she financially planned for her educational costs beginning as an undergraduate student.

She said she worked hard to complete her undergraduate education with no debt because the University estimates an average debt of $196,000 for the cost of medical school as a Minnesota resident.

After paying tuition and fees, McNabb said the money she receives back is anything but a refund.

“To call it a refund sort of suggests, ‘spend it how you want,’ ” she said. “Students think, ‘Great, I have all of this money.’ That refund comes with interest. It is not like a tax rebate or something where it is exactly money in your pocket.”

But Kushnir, who pays for her own school expenses, said the extra debt isn’t the end of the world for her.

She said she pays necessary bills and spends the excess to add to her college experience.

“Maybe I will see it as irresponsible later down the line when I start paying it off,” she said, “but right now I’m just trying to live it up and I’m young and I’m never going to live these years again.”

Kantrowitz said it’s important for students to understand that college is the transition to adulthood and it’s the time when people start making mistakes with money. To minimize loan debt over a four-year period, he suggested students aim to keep it less than the expected starting salary after graduation.

“The more debt you have, the more it is going to effect the decisions you make next,” he said.

Jayme Beyer, a communications senior, said she spends loan refund checks fairly responsibly, but always uses some for a spring break trip.

She said she never does anything extravagant and looks for good deals on trips.

“I justify that, one, school is hectic enough, and it’s nice to have a week off,” Beyer said.

Virginia Zuiker, an associate professor of family social science, teaches a personal and family finance class to help students gain control of their finances.

This semester the class has 120 students, and Zuiker said more students could benefit from learning budget basics.

“Most (students) have not done financial statements,” she said. “They have not taken the time to look at what are the assets they have and what the liabilities are.”

By doing things like this, Zuiker said, students realize they do have liabilities – one of them being student loans, which they will have to pay back. But that doesn’t mean fun has to take a backseat in college.

“We’re not saying you can’t have fun, but you need to plan for your fun,” she said.

Kantrowitz agreed.

“The first rule of thumb that I tell students is live like a student while you’re in school,” he said, “so you don’t have to live like a student when you graduate.”