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When Living Off Campus, Avoid These Loan Mistakes

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When Living Off Campus, Avoid These Loan Mistakes


Student Loans can be used to pay for off-campus living expenses like rent and food, but experts warn of relying too heavily on loans for those in an apartment near campus or those commuting and living with family.

"Usually, the cost of attendance is higher when a student opts to live off campus; however, this usually allows for additional funds to be awarded to students because of the higher cost of attendance," Deborah Stanley, director of financial aid at Bowie State University in Maryland, wrote in an email.

Because living off campus can mean becoming eligible for more student loans, experts advise students to exercise caution and avoid these common mistakes:


Skipping the Free Application for Federal Student Aid

To receive federal student loans, students must first complete the Free Application for Federal Student Aid, or FAFSA. On the form, applicants can specify whether they plan to live off campus, on campus or commute while living with relatives, says Brad Barnett, director of financial aid and scholarships at James Madison University in Virginia.

Colleges create cost of living estimates for students in each of these three categories based on surveys and statistics, says Jerry Cebrzynski, Associate Vice President for financial aid at Lake Forrest College in Illinois. Those cost of living estimates are one element used to determine a student's eligibility for student loans.

"On campus, obviously we know what those costs are; off campus, we get an estimate of rent and meals; and for a commuting student who lives with a parent, tuition and fees will be the same, meals will probably be the same, but it's the rent part of that, because they're probably not paying rent at their parents', that’s removed from the equation," Cebrzynski says.

If a student's financial aid package amounts to more than tuition, fees and any other billable expenses, he or she typically receives a refund for the remaining amount. That money, typically disbursed at the beginning of the semester, can go toward rent, bills, food and other off-campus necessities.

The process to be considered for private student loans differs from that for federal student loans: Students must apply through a private lender rather than through the FAFSA, and they typically must have a loan co-signer.

Living lavishly

Students living off campus should examine where they can cut back on spending and how they can make student loans stretch the furthest, experts say.

"Far too often, students don't look at what they can do within their current environment to make it more affordable," Barnett says. "They just think they need more money."

Overspending or using student loans to support an expensive lifestyle can lead to an immense financial debt burden. A luxury apartment building, for example, can be a significant drain on a student's finances while in college, according to Julie Selander, director of One Stop Student Services at the University of Minnesota – Twin Cities. The office provides financial literacy outreach, among other services.

Upscale accommodations are particularly tempting since they're often constructed around campuses and aimed at students. But resist the urge to move in. "You don't have to keep up with the campus Joneses," Selander says.

Borrowing too much or too little

Off-campus students, like all borrowers, should follow the ABC rule: Always borrow conservatively, Cebrzynski says.

Though a student may be eligible for a certain amount of loans, it’s not always wise to borrow the full amount. But students should also carefully list all off-campus expenses in a personal budget to avoid overlooking costs.

"Students often don't accurately budget for the expenses of living off campus, resulting in them borrowing too much or not enough depending on their needs and expenses," Stanley says.

All the costs were neatly packaged into dormitory fees, such as cable and internet, energy bills and furniture, will come out of a student's loans or pocket if he or she has chosen to live off campus. And students will have new financial responsibilities, such as a security deposit, renter's insurance and home maintenance supplies.

One of the biggest ways to cut expenses is to ditch the car, Barnett says, especially since many campuses are walkable or equipped with affordable bus systems and shuttle services. "The car issue is big," he says. "You really don't need a car on a college campus."

Relying solely on loans

Students may be able to fully fund their living costs with student loans, Selander says. But that doesn't mean they should.

Each dollar borrowed must be repaid, with interest, after leaving school. Interest can range from 2.75% for federal undergraduate student loans to 5.3% for PLUS loans disbursed between July 1, 2020, and July 1, 2021. Any money students can put toward their living expenses up front will be cheaper in the long run and could keep them from having to manage runaway student loan debt after graduation.

Students can tap their savings and look into an on-campus part-time job that can be balanced with classwork.

"Off-campus housing can be much more affordable for students who 'get it,'" Barnett says. That means finding an inexpensive place to live, understanding how to food shop and keeping utilities down."