So you’ve made it to the finish line! You have been accepted to a handful of colleges, picked the college of your dreams, finished up the FAFSA, secured an aid package that works for you and you’re all ready to move into your dorm. Now that all of the big picture items are ironed out, it’s time to dive into the details–and not just what color sheet set you’re going to buy. The details about your financial aid package are important to know before you set foot on campus.
Most students will accept a financial aid package that is a combination of scholarship money given directly from the school, student loans (both subsidized and unsubsidized), parents loans, and possibly work-study. Be sure to understand how all of these different funds will be applied to your tuition account and what happens if there is money leftover.
Disbursement Process
Student loan funds are disbursed directly to the school from both public and private funders. Typically, this process will occur twice a year, most likely at the beginning of each semester. The college’s financial aid office will notify you when the funds are applied to your balance.
For freshmen, funds will not be released until 30 days after the initial enrollment, and first time borrowers of Stafford and Plus loans are required to complete Entrance Counseling prior to receiving funds. Entrance Counseling is required by the Federal Government to ensure that students understand the responsibilities and obligations of taking a student loan.
The session will include information on the loan process, how to manage expenses and budgeting, how to plan the repayment schedule of the loan, as well as how to avoid defaulting on the loan. The session is designed to assist students in making good decisions about student loans and how they are used to pay for college. The counseling sessions takes approximately 20 to 30 minutes and can be completed online. You only need to participate in this counseling one time.
Another round of counseling is mandatory for students upon graduation or when students leave school or drop below half-time status. This exit counseling is required to provide students important information on loan repayment, and includes similar topics to those covered in the entrance counseling. The ultimate goal of both sessions is to educate the student regarding the student loan process and successful repayment.
Funds Transfer
Once the college receives the funds, the school will credit the student account to cover tuition, room and board, and any other fees. When the balance is paid in full, the school will refund any extra money to the student.
If you have been awarded a work study assignment, the disbursement of these funds works differently. The funds are disbursed upon the completion of the work assignment–typically on a bi-monthly basis, but check with your individual school for details on how they manage the work study program.
Overall, the student loan disbursement process is relatively painless for the student. Just be sure you are paying attention to the disbursement dates and transactions, making sure your account is in good standing with the university.
Financial Aid Refunds
When the disbursement process is complete, sometimes there will be extra funds from scholarships, grants and student loans in a student’s account. When this happens, the money will be refunded to the student. Colleges will refund the remaining balance to the student through a check to the student, direct deposit into the student’s bank account or credited to the student’s college account for the next term. Refunds are typically sent to the student after the semester starts and often after the drop/add date. You should be in close contact with your college’s financial aid office to keep track of disbursements and refunds.
Students are able to use the remaining funds without regulation, however, students are cautioned to use the funds wisely on essentials only. Funds can be allocated to basic living expenses, transportation, books, and school supplies. These expenses can be difficult to estimate, especially as a first year student, so mastering a budget for the semester will be important to the long term financial success of the student. Students shouldn’t overspend on these items, but students also need to be sure they have enough money to cover their needs until the next disbursement of funds.
Keep in mind that remaining funds from student loans will be part of the same interest bearing loan used for tuition even though the funds are used for non-tuition expenses. In fact, according to Forbes, “The universal regret most college graduates with federal student loan debt have is how they spent their student loan refund checks.” Student loan refunds are not free money and shouldn’t be spent on frivolous things. In addition, refunds should not be used as a replacement for a part time job and careful budgeting.
The good news is that students do have the option to arrange for the excess funds to be returned in order to reduce the overall loan amount a student will owe after completing school. This can be a great option to make sure you aren’t over-borrowing on items that aren’t essential to tuition, room and board. In addition, the funds can be held in a student’s account in advance preparation for the next semester’s tuition. With so many options for the student loan refund, its critical for students to understand their options, work closely with their financial aid office, budget carefully for the semester, and keep the long term repayment in view.
You Made It
So now that you have reached your goal and found a way to pay for it–with the help of scholarships and student loans–it’s time to become a student of the financial aid process. Be diligent in your communication with the financial aid office, track your disbursements, account balance, and refunds carefully. Use your refund money with care, and keep in mind that every dollar you borrow will need to be repaid in the future.
