With the price of increased training climbing sooner than a freshman’s caffeine consumption throughout finals week, it’s no shock that many college students depend on a mixture of scholar loans and scholarships to get by means of faculty. However when you toss that commencement cap, you would possibly marvel, “Can I exploit scholarships to repay loans?”
Sadly, the reply is normally no—at the least, circuitously. Scholarships cowl future bills; they don’t wipe away present debt.
Nevertheless, there are some exceptions. Learn the way scholarships work and the way you might be able to use them to repay loans, plus just a few various methods to think about if scholarships gained’t put a dent in your debt.
How Scholarships Work—And Why They Can’t Immediately Pay Off Loans
Scholarships are sometimes designed to cowl tuition, charges, and different certified instructional bills whilst you’re nonetheless at school, to not function a retroactive debt eraser.
And sure, that applies to scholar loans, too. So even in the event you rating an superior scholarship in your sophomore 12 months, you may’t use these funds to pay for the debt incurred throughout your freshman 12 months.
Generally, scholarship funds are despatched straight to your faculty or college’s monetary help workplace, bypassing your private checking account completely. This implies the cash is mechanically utilized to your invoice, overlaying:
- Tuition
- Books
- Housing
- Administrative charges
Scholarship suppliers and colleges usually have strict guidelines about how you need to use these funds, so paying off present debt normally isn’t an possibility.
Typically your scholar loans and scholarships mixed exceed your eligible prices, and the college might concern you a refund for the leftover quantity. In case your tuition is already totally lined, the college might merely scale back your mortgage quantity as an alternative of reducing you a test. This selection reduces your debt earlier than it’s utilized to your mortgage stability, moderately than offering money to repay present balances.
Can I Use Scholarships to Pay Off Scholar Loans? Potential Workarounds
Search for Scholar Mortgage Grants
A handful of packages are designed particularly to wipe away present debt, usually referred to as mortgage compensation help packages (LRAPs). These aren’t tuition scholarships in any respect: they’re grants that you just don’t should pay again.
Examples embody:
Scholar mortgage forgiveness grants could be a good option to handle scholar loans you’ve already taken out. If you wish to scale back your debt load going ahead, scholarships will assist scale back future tuition payments. Each choices work collectively to cut back the entire quantity you owe, simply in several methods.
See if You Qualify for an Overpayment Refund
In case your scholarships cowl greater than your tuition and different certified bills, your faculty would possibly concern a refund test for the additional quantity. In concept, you possibly can use that to make a dent in your loans.
However right here’s the tremendous print:
- For those who use the refund for non-qualified bills, it could possibly be taxable.
- Not each scholarship permits refunds.
- Your faculty might merely scale back your mortgage quantity as an alternative of issuing money.
Potential Pitfalls of Paying Off Scholar Loans With Scholarships
Even whether it is technically potential to make use of scholarships towards debt, there are just a few potential points with paying off present loans with a scholarship:
- It might have an effect on your need-based help eligibility. If exterior scholarship cash reduces your demonstrated monetary want, your faculty would possibly regulate different elements of your help package deal, typically changing grants with loans.
- You might lose the scholarship completely. Utilizing funds in a method that isn’t accredited below the award’s phrases can get your scholarship revoked and even require compensation.
- The IRS is paying consideration. Any portion of scholarship funds used for non-qualified bills is taxable revenue. Hold detailed data of the way you used the cash for at the least seven years in case the IRS comes knocking.
Scholarships Can’t Do It All—Right here’s What’s Subsequent
For those who’re questioning, “Can I exploit scholarships to repay scholar loans?”, the fact is that scholarships forestall debt, not erase it. They frontload your training prices, lowering or eliminating the necessity to borrow within the first place.
Whereas scholar loans and scholarships don’t sometimes cross paths as soon as your tuition is paid, some specialised grants and mortgage compensation packages might help cowl prices retroactively.
For those who nonetheless have present debt, your greatest wager could also be exploring alternate options comparable to:
- Mortgage forgiveness packages
- Refinancing for a greater rate of interest
- Facet hustles or part-time work to make further funds
Scholarships are a strong software in your monetary help toolbox, however they work greatest whenever you use them to stop debt, moderately than making an attempt to pay it off after the very fact.
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