Student loan refunds are very important for individuals taking out federal or private student loans. If you have only just recently taken on your student loan, then you might not have come across this option yet. It is important that you understand the ins and outs of student loan refunds in order to determine if this is something you want to accept.
STUDENT LOAN REFUNDS DEFINED
Let’s start with a basic definition. A student loan refund refers to excess funds from your federal or private loans over and above the amount needed to cover the cost of your college education. While you may be receiving funding from other sources like financial aid, scholarships, and cash payments, this refund originates specifically from your student loans. This means that even if you are eligible for this refund, you must ultimately pay interest since you are still borrowing that refund money. However, this money can be very useful to students for the many one-time costs when starting college.
HOW STUDENT LOAN REFUNDS ARE PROCESSED
The actual process of obtaining a student loan refund requires dedicated time, attention to detail, and patience on the part of you as a student. First, the college’s office of financial aid must determine your financial aid package, which will help to cover part or all of college tuition, room and board, books, and other expenses (aka “cost of attendance”). After this, you as the student must fill out all necessary paperwork in order to receive your financial aid, including your award letter and any verification documentation and/or any required loan promissory notes. Lastly, unless you receive full financial aid, you will likely need to take out a supplementary student loan to cover the remainder of your college expenses. In this case, you must apply for the loan, and the lender will process it in conjunction with your school to ensure that the loan amount aligns with the cost of attendance. Once the loan is approved, the school will add together all of your sources of funding and register a “mismatch” when your college funding sources exceed the cost of attendance. Only now will you receive a refund check.
COMMON PITFALLS TO AVOID
Given the complexity involved in financial aid applications, student loan applications, and the student loan refund process in general, there are many areas where things can go south. Two of the most common pitfalls you want to avoid include late or erroneous paperwork. If you submit your federal student aid application too late, then this will likely take a good amount of time to process, and you will probably not get your refund check until late in the semester. Likewise, errors in your paperwork (e.g. missing signatures, incorrect or missing information) can delay the process and therefore delay delivery of your student loan refund. The best way to avoid these pitfalls is to give yourself ample time to complete your paperwork, review it in full, and submit it earlier rather than later.
So, after all this, are student loan refunds really worth it? The answer ultimately depends. Student loan refunds are a great source of funds for students at the beginning of their college careers who need to cover expenses they would otherwise not be able to afford. That said, however, you should remember that student loan refunds are still considered “loans” and therefore carry interest. Be sure to factor both of these in when you consider whether or not to accept a student loan refund.