How to Be Responsible with Your Financial Aid

responsible with financial aid

Student financial aid is a great thing. When President Lyndon Johnson signed the Higher Education Act of 1965 into law, it made college education more accessible to more students than ever before. For the 2012-13 school year, $238.5 billion in financial aid was distributed to students in the form of grants from all sources. And yet, recent headlines have been filled with stories about students defaulting on loans. How could a great thing like financial aid turn into such a big problem? More importantly, how can students make sure they don’t fall into personal financial crisis because of student loans?

Government-backed student loans are an attractive option for students because they usually carry a relatively low interest rate. But those loans will need to be repaid eventually and even a low interest rate can compound quickly. For example, if you borrow $20,000 at a 6.8% interest rate and take 10 years to repay the loan, you will pay an extra $7,619 in interest.

Try to avoid mortgaging your future as much as possible by being responsible about how much you borrow. If you’re planning to request the maximum loan amount when you apply for student loans, ask yourself if you really need all that money. Sit down and create a budget. Figure out exactly how much you will need to pay each year for tuition, books, and other expenses that are directly tied to your education, and then deduct any funds you may be able to divert from your household income. The difference is the amount of financial aid you will need.

Once you have your financial aid, you need to be conscientious about how you spend it. The easiest way to manage student debt is to make a strict rule that you will only use loans for legitimate educational expenses. For online students, legitimate educational expenses include tuition, books, and technology fees. Students who are attending school on a campus might have additional expenses such as housing and transportation. Regardless of your situation, keep your education funds separate from other expenses.

Too many people get into long-term financial difficulties because they start dipping into their financial aid to pay household bills or lending money to friends and family. While it might be hard to turn away a friend in need, realize that your financial aid absolutely should not be used on other people. That money is only for you and your education.

In addition to the situations mentioned above, there are many other “no-no’s” when it comes to financial aid. For instance, do not use financial aid for anything that would be considered a luxury item, including vacations, clothes and jewelry, gifts for other people, and cars (unless you legitimately need transportation to commute to school). Again, you need to make a clear demarcation between expenses that are directly related to your education and all other expenses.

Be aware that there can be major consequences for students who misuse financial aid. Loan abuse can wreak havoc on your financial future. You could be repaying debt for many years or you could go into default which will ruin your credit score and inhibit your ability to get a mortgage, apply for credit cards, buy a car, or even rent an apartment. College should be an open door to your future; don’t close that door by misusing your financial aid.


Written by Erik Siwak, Communications Manager for Bridgepoint Education


Trends in Student Aid 2013. (2013, October 17). Retrieved July 21, 2016. From

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