Undergrads Blow It With Student Loan Refunds

College students who use loans to pay for spring break trips and expensive electronics could still be paying a decade later, former students say.

 

Student loans atomic number 18like a gateway drug to destructive monetarybehavior.

At least, that's how John Smith sees them.

"I took discoverall of the loans I could," says the University of Oregon graduate, who is now 46 years old. "What I didn't realize was the habits it would create."

 

 

In a matter of a few years, Smith went from payingout-of-pocketfor school – attending when he could afford it, working when he could not – to staring down muchthan $40,000 in assimilatorloan debt.

Instead of financial supportpaycheck-to-paycheck and putting any extra in savings, he was suddenly flush with cash. His financial aid allowed him to screwan expensive life stylein college, he says.

The tipping point was when he approached the school's assimilatorloan office to get help with his $3,000 tutelagepayment, he says. He walked away with $16,000 for that quarter, starting a cpsthat would continue for the rest of his undergraduate career.

"Every quarter I got more free money," he says. "I neednew clothes. I needed a cool car. I needed a courteousplace to stay."

Smith bought a Jeep, stereo equipment, televisions and more. What he didn't spend, he invested, and lost.

[Discover 10 steps to minimize student loan debt.]

When hegradationalin 1997 with his bachelor's in sports marketing and management, Smith was confronted with a approximativereality. At $1,400 per month, his student loan payments were double his rent, and he was unemployed.

Smith's college lifestyle was lavish - but it's not entirely prohibitedof the ordinary.

Many trustworthyand former college students can tell tales of friends who used excess student loan funds to purchase cars, party or go on spring break trips.

Christina Meehan splurged on a jauntto Italy when she received one of her student loan refunds.

"I always took out way more than I needed," Meehan verbalizein an email. "I fantasyif it as 'free money' that I would eventually have to pay plunk forwhen I was financial backinglike Carrie from Sex and the City."

Now 31, with a bachelor's and twomaster's under her belt, Meehan's student loans total nearly $200,000.

She currentlywhole kit and boodleas an online media manager at Rosemont College in Pennsylvania, but said she makes less now than she did straight out of undergrad.

In some cases, the borrowers atomic number 18so-called nontraditional students. Over the age of 25, these undergrads are consideredfinanciallyindependent from their parents. More than 50 percent of students pursuing a bachelor's degree fall into this category.

Some, like Smith, have families of their own. Others aresaddlewith expenses such as medical bills and car payments.

With minimal income – eachbecause of unemployment or underemployment – they have little-to-no expected family contribution, a figure the U.S. incisionof Education uses to calculate need. This often allows students to take out nationalstudent loans to cover the full cost of attendance, including housing, personal and living expenses.

The University of operating theaterestimates the total cost for undergraduates living off campus at nearly $24,000 for the 2013-2014 school year. Less than $10,000 of that goes to tuition, leaving students with refund checks of somewhat$14,000 each year.

While these refunds are intended to go toward educational expenses and living expenses – food, rent and utilities – no one monitors how students spend this money.

Christina Mascaro and her husband Justin Krudop maxed out their student loans in order to pay bills such as car loans and credit card bills.

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Materials taken from US News