If you realize you borrowed too much money to pay for college, you may wonder how to return unused student loan money.
Depending on loan type and your lender, you may be able to return the excess amount — or cancel the loan entirely — without having to pay interest or fees on that amount.
However, how lenders handle interest on returned loans depends on how quickly you return the funds and notify the lender. To ensure you don’t pay unnecessary interest and fees, continue reading to learn how to return unused student loan money.
- How to return federal student loan money
- How to return private student loan money
- Why you might have money left over from financial aid
- How to decide if you should return the loan money or spend it
- How to avoid borrowing too much next time around
How to return unused student loan money from the federal government
To qualify for federal financial aid — including federal student loans — you had to complete the Free Application for Federal Student Aid (FAFSA). If you’re researching how to return FAFSA money (meaning aid you received from the government to pay for college), you should know that it is possible to return unused federal student loans.
When you borrow too much money, the remaining amount will appear as a credit in your student loan account. You can receive that credit as a refund check to cover other expenses or return the money to the Department of Education and reduce your student loan debt. If you return your loans within a certain period, the government will waive interest and fees.
However, there are some timing restrictions. In general, you must return your loans within 30 to 120 days. If you return your loan within that timeframe, you won’t be responsible for any associated fees or student loan interest that accumulated since the disbursem*nt date. The loan servicer will adjust the loan amount to eliminate the interest and fees that may have accrued on the returned portion.
Returning a federal loan within 14 to 30 days
Within 14 to 30 days of your loan disbursem*nt date, you can cancel your loan by notifying your college that you want to return some or all of the amount borrowed.
If you inform the school within this timeframe, the college is required to process your cancellation request. No interest or fees should be charged on the returned amount.
Returning a federal loan within 31 to 120 days
Contact your school’s financial aid office if you decide to return some or all of your federal loan 31 to 120 days after its disbursem*nt. Some schools will handle it for you, but they aren’t required to do so.
If the college won’t handle it, contact your loan servicer to find out how to return unused student loans.
No interest charges should accrue, and the lender will waive any fees on the returned amount.
Returning a federal loan after 121 days
Can you return student loan money after 120 days have passed since the disbursem*nt date? Unfortunately, you can’t cancel or return the loan, but you can pay it back early.
You can make a lump sum payment for the excess amount through your account with your loan servicer. However, you will have to pay the accumulated interest and fees.
While that may be frustrating, keep in mind that paying off the excess amount will help you reduce the total amount of interest that accrues on your loans, allowing you to save money over time.
| Returning federal student loans within… | How are interest charges handled? | Who processes the request? |
|---|---|---|
| 14 to 30 days | Interest and fees are waived | College financial aid office |
| 31 to 120 days | Interest and fees are waived | College financial aid office or federal loan servicer |
| 121 days or more | Borrower is responsible for interest and fees | Borrower must make a payment |
Contact your school’s financial aid office as soon as you know you want to return excess student loan funds. They can provide details on requesting a cancellation or return of your loan money. You’ll typically need to submit a written request, or you may need to contact your federal loan servicer on your own.
If you aren’t sure who your loan servicer is, log into your account dashboard with your Federal Student Aid (FSA) ID, or contact the Federal Student Aid Information Center at 1-800-433-3243.
How to return unused student loan money from a private lender
Because private student loans are issued by individual banks, credit unions and online lenders, their policies can vary greatly. Although it’s possible to return unused private student loans, how accrued interest or fees is handled depends on your lender.
Some lenders will waive any interest and fees so long as you cancel all future loan disbursem*nts and return previously disbursed funds within 120 days of when you first received the money.
With others, you’re responsible for all interest and fees, even if you return the loan within a few days or weeks of disbursem*nt. Read your loan agreement or promissory note to find out how your lender handles canceled or returned funds.
Remember that repaying unused funds on a private loan can still be a smart idea, even if the lender won’t waive the interest.
For example, say you took out a $15,000 private student loan with a 10-year term and a 5.00% interest rate. After covering your tuition and other expenses, you had $5,000 in unused loans. If you made a lump sum payment to return that money, you’d pay off your loans nearly four years earlier and save $2,476 in interest charges.
To see how returning our loans can affect your overall repayment cost, use the lump sum payment calculator.
Why you might have money left over from financial aid
Few students think about excess student loan dollars, but it’s a common issue. When you apply for student loans, the lender usually looks at the total cost of attendance, which includes tuition, room and board, school-required fees, transportation, health care and other expenses.
When your loan is disbursed, the lender pays the school directly. The college then applies your funds to its required academic expenses, such as tuition or dorm fees. Any leftover money is issued to you as a student loan refund.
The additional funds may be sent to you via direct deposit, school debit account or check.
You can use the student loan refund to cover other expenses, like your textbooks, groceries or gas for your car. But your expenses may be lower than you — or your lender — anticipated.
For example, you may have gotten a great deal on an off-campus apartment and can now cook at home, saving money on dorm fees and meal-plan costs. Or you may have qualified for a last-minute scholarship that covered some of your supplies or textbooks. If that’s the case, returning a portion of your loan can help you save money over time.
How to decide if you should return the loan money or spend it
If you have excess student loan dollars, you may be torn between keeping or repaying them. As you decide what to do, consider some responsible uses of unused student loans:
- Paying for other education-related expenses: Student loans can be used for qualified education expenses. However, many people are surprised by what’s considered a “qualified” expense. You can use your additional funds to cover the cost of textbooks, a laptop for classwork, a bus or train pass, or even child or elder care. You can view the list of qualified educational expenses in the Federal Student Aid Handbook.
- Stashing some money in an emergency fund: As a college student, you may not have much savings. And an emergency expense — for example, a flat tire or an unexpected fee required for class — can wipe out your bank account or even make it impossible to finish your classes. Stashing some unused dollars in a savings account can help if minor emergencies pop up.
- Repaying high-interest student loans: You will likely take out several student loans before you graduate, and they all may have different interest rates. If you have unused dollars, you can put that money toward repaying the loan with the highest interest rate. This approach — known as the debt avalanche strategy — will help you save more money over the life of your repayment term.
If you do have unused student loan funds, spend them wisely. Blowing your loans on vacations, the latest phone or drinks with friends can cost you over the long run — and in fact, many lenders prohibit these expenses for student loans.
How to avoid borrowing too much next time around
While it may be tempting to borrow more than you need for school, think twice about applying for a higher amount. Student loan debt can snowball over time, and you could end up paying thousands more than you initially borrowed.
Though it is possible to return federal and private student loan money you don’t need, it’s easier — and often less expensive — to avoid the issue in the first place. Here’s how to borrow the correct amount in the future:
Do the math
To decide how much you need to take out in student loan debt, ask yourself the following questions:
- How much money are you receiving from other sources? Be sure to include scholarships, state grants, income from work-study programs, contributions from your parents, your own savings and
- earnings from part-time or summer jobs.
- How much is your cost of living? This total should include tuition, room and board, transportation and books and supplies. If you’re living off-campus, room and board refers to rent and a minimal food allowance. While entertainment and other splurges aren’t things you should be spending student loan money on, other qualified expenses include tutoring services, software needed for coursework or disability-related expenses.
- How much do you need to borrow? Take your tuition and estimated cost of living and subtract the amount you receive from other funding sources. You probably don’t need to borrow any more than that.
Choose an affordable school
Can you return student loan money? Depending on your loan type and your lender’s policies, you can often return unused student loans, and the lender may waive the interest and fees.
Now that you know how to give back student loan money, you can focus on planning for your future. Look closely at the cost of attendance at each school on your shortlist.
If your top choice will cost you tens of thousands of dollars more than your second or third preference, consider going with one of the cheaper options — or the one that provides more gift aid and reduces your out-of-pocket costs.
