Fortunately, you can give your lender back the unused student loan money, although the time and type of loan can determine how much it will cost you.
Paying off part or all of a federal loan within 120 days would not cost a dime in interest or fees. You will most likely pay to pay off your unused private student loans, but it will pay off the sooner you return the funds.
Here’s what you need to know:
How to Return Unused Federal Student Loan Money
Unused federal student loans can be repaid. However, you have to do it within 30-120 days. If you are able to repay your loan, you will only be responsible for returning the loan amount that you wish to repay. You are not responsible for any associated fees or student loan interest accrued since the loan was disbursed.
As soon as you know you want to pay off all or part of your federal student loan, call your school’s financial aid office. They can walk you through the details of how to do this, but you can usually expect to receive the following instructions, depending on the number of days after the disbursement for which you are requesting a reversal.
| Federal Student Loan Money Repayment After … | What there is to know |
| 14 to 30 days | If you provide a written request for cancellation up to 14 or 30 days from the date the school informed you of your right to cancel or the date the loan money was disbursed, your school should be able to return your student loan money to the loan manager for you. Note that the exact deadline will depend on the specifics of your situation.
Just be sure to keep a copy of the letter and send it by certified mail with acknowledgment of receipt. This will serve as proof of the content of your request, as well as the date it was received by the financial aid office. |
| 30 to 120 days | If you provide a written request for cancellation between 30 and 120 days from the date your loan money was disbursed, it is at the school’s discretion to process the cancellation request.
If the school does not, you are responsible for returning the money directly to the loan manager. In this case, you will need to find and contact your loan manager. You can find the phone number and address in your loan correspondence or by using StudentAid.gov. Whatever your situation, call your financial aid office first to make sure you are clear on what needs to be done and when you need to do it. After providing your written cancellation request, look for the acknowledgment in the mail. Once you’ve received this, follow up with the financial aid office to see where things stand. |
| 121 days or more | All is not lost if you miss the 120 day deadline. While you can’t pay off your student loan, you can pay it off completely. Simply send the unused funds to your student loan manager the same way you would any other student loan payment.
However, you will still have to pay the fees and interest accrued until then. Still, paying off money you really don’t need could save you hundreds of dollars in interest over the life of the loan. What can happen if you’ve borrowed too much is that it will show up as a credit in your student loan account. This amount will then be sent to you at the end of the semester in the form of a student loan repayment check. You have the option of returning this money to the Department of Education, which would reduce your student loan debt. There should be instructions included on how to return these funds if you choose to do so. |
While banks, credit unions, and online lenders aren’t as generous on schedule as the Education Department, there’s still an opportunity to pay back unused student loan money. It’s just better to do it ASAP.
This is because if you repay a private loan to your lender, you will still be responsible for the interest. However, you can return the remaining funds as a student loan repayment. It won’t immediately erase your debt, but it could make a big dent.
Suppose you have $ 5,000 in unused student loans on $ 15,000 debt with an interest rate of 5.00%. If you returned that $ 5,000 to your lender in one lump sum, you could save $ 2,476 in interest. That’s because you’re reducing your repayment term by about four years, according to our Lump Sum Additional Payment Calculator.
Why you might have financial aid money
You might not think of your student loans as extra cash in your bank account. But after your school uses your loans to cover tuition, tuition, accommodation, and meals, you might have some cash left. This is the key to understanding how your student loans are paid out.
Federal student loans are sent directly to your school, usually via two disbursements during the school year. If you are a first-time borrower, your payment may be delayed for up to 30 days. The same goes for grants if you have FAFSA money left over.
The school applies the loan amount to your most essential academic expenses: tuition, tuition, room and board. What is left (often referred to as a credit balance) will usually be sent to you by check, direct deposit, or school debit account.
The process for disbursing student loans is similar for private student loans. Lenders rarely send funds to you directly. Most often, private college loan money goes to your school. After all, your lender needs your school to verify that you’re enrolled and that you’re not trying to borrow more than your tuition.
However, you could end up with funds left over from your university loans if:
- You plan to live off campus and your school will reimburse you for on-campus housing costs.
- You’ve borrowed more than you need to.
- You got a last-minute scholarship that made part of your loan amount useless.
How to avoid borrowing too much next time
While it’s possible to repay federal and private student loan money that you don’t need, you’ll be much better served by avoiding such a situation in the first place. Here’s how to borrow the right amount the first time.
Do the math
- How much money do you get from other sources?
Be sure to include scholarships, state grants, income from work-study programs, contributions from your parents, your own savings, and income from part-time or summer jobs. - How much is your life costing?
This total should include tuition, room and board, transportation, books and supplies. If you live off campus, accommodation and board refer to rent and a minimum alimony. Additional expenses aren’t the kind of thing you should be spending student loan money on. Exceptions can be money needed for tutoring, school software, or disability-related expenses. - How much do you need to borrow?
Subtract your estimated cost of living from the amount you receive from other sources of funding. You don’t need to borrow more than that.
Choose an inexpensive school
If you have not yet registered or are transferring, carefully consider the cost of attending the schools you are considering. If your first choice is going to cost you tens of thousands of dollars more than your second or third preference, consider going with one of the cheaper options. It is perhaps the one who receives the most financial assistance.
You can easily pit schools against each other using our financial rewards comparison tool.
André Pentis, Rebecca Safier and Sarah Li Cain contributed to this report.
