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Are there specific rules to this?

Posted: Tue May 30, 2017 1:34 pm
by vcap180
I have not yet applied for federal loans, so I have not yet read any of the corresponding paperwork.

To those who have: do the terms specify what you can/cannot use that money on? Or, more precisely, does it specify what is considered a legitimate cost of living expense?

Could one use left over funds to service high interest credit card debt? Or to invest in the stock market? Or to play roulette? Or to go on vacation?

Re: Are there specific rules to this?

Posted: Tue May 30, 2017 1:44 pm
by lymenheimer
No. No. Yes. Yes. Yes. Yes. But you're still gonna be on the hook for the loan payment.

Re: Are there specific rules to this?

Posted: Tue May 30, 2017 1:58 pm
by vcap180
lymenheimer wrote:No. No. Yes. Yes. Yes. Yes. But you're still gonna be on the hook for the loan payment.


Thanks for the response and concision.

But are you sure? This wouldn't be considered fraud or something similar?

If not, wouldn't it make sense for certain people to take out the maximum COA amount to service their debts with comparatively unfavorable terms (credit card, private undergrad, loans from the mafia, etc lol).

Can't see how that would be allowed.

Re: Are there specific rules to this?

Posted: Tue May 30, 2017 1:59 pm
by A. Nony Mouse
Actually strictly speaking you probably can't service high interest credit card debt or invest in the stock market either - loans are supposed to go to educational expenses, which is room and board and books and travel to/from school and standard incidentals but nothing really beyond that. If you can budget such that within the COL allowed you have leftover money you're unlikely to be audited unless you do something crazy with it (in my totally unprofessional opinion) but the expectation is that it's not going to be enough money to go crazy.

(If you pay for your room and board with a credit card of course you can use the loans to pay it off, even if you run up a little bit of a balance, say at the end of one semester waiting for the next semester's money to come in. But if you come in to law school carrying a balance you're not strictly speaking supposed to pay that off with loans. Again, if you have extra beyond what you need to live a lot of people will put it to cc debt, but technically it's not to be used to pay off non-educational expenses.)

Edit: posted before I saw your second post. It's probably technically not allowed, but I don't think anyone is going to inquire too deeply into the standard COA amount, so it's on you. I definitely know people who took out student loans to pay off high-rate ccs, but I don't know if I'd do that now (the DOE has definitely cracked down since I know of that happening, it was a while ago).

Re: Are there specific rules to this?

Posted: Tue May 30, 2017 2:07 pm
by lymenheimer
I guess to be more clear: i didn't read a list of things I can't spend my student loans on, and you get cut a check at the beginning of the semester, so it's cash on hand and you could spend it on whatever. Doesnt mean youre supposed to or "allowed to" I guess.