Can You Return Unused Student Loan Money?

Fortunately, you can return unused student loan money to your lender, though timing and loan type could determine how much it will cost you.

Returning some or all of a federal loan within 120 days wouldn’t cost a dime in interest or fees. You’ll very likely pay to return your unused private student loans, but it’ll be more cost-effective the sooner you send the funds back.

Here’s what you should know:

How to return federal student loan money How to return private student loans Why you might have money left over from financial aid How to avoid borrowing too much next time around How to return unused student loan money from the federal government

It is possible to return unused federal student loans. However, you must do so within 30 to 120 days. If you are able to return your loan, you will only be responsible for giving back the loan amount you wish to return. You are not responsible for any associated fees or student loan interest that has accumulated since the loan was disbursed.

As soon as you know you would like to return all or part of your federal student loan, call your school’s financial aid office. They can instruct you on the specifics of how to proceed, but you can generally expect to be instructed to do the following, depending on how many days after disbursement you’re requesting a cancellation.

Returning federal student loan money after …	What to know
14 to 30 days	If you provide a written request for cancellation up to 14 or 30 days from either the date that the school notified 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 servicer 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 via certified mail with a return receipt. This will serve as proof of the content of your request, as well as of 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 whether it processes the cancellation request. If the school will not do so, then you are responsible for returning the money directly to the loan servicer. In that case, you will need to find and contact your loan servicer. You can find the phone number and address in your loan correspondence or by using StudentAid.gov. Regardless of your situation, give your financial aid office a call first to ensure you are clear on what needs to be done and by what date you need to do it by. After providing your written request for cancellation, look for the return receipt in the mail. Once you receive that, 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 won’t be able to return your student loan, you can absolutely pay it back. Simply send unused funds to your student loan servicer the same way you would any other student loan payment. However, you will still have to pay fees and any interest that has accumulated up to that point. Still, returning 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 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 refund check. You have the option of returning this money to the Department of Education, which would lower 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 with timing as the Department of Education, it’s still possible to return unused student loan money. It’s just best to do it as soon as possible.

That’s because if you return a private loan to your lender, you’ll still be responsible for interest. However, you could return the leftover funds as a student loan payment. It won’t immediately erase your debt, but it could make a big dent.

Say you have $5,000 of unused student loans on a $15,000 debt with a 5.00% interest rate. If you returned that $5,000 to your lender in one big payment, you could save $2,476 in interest. That’s because you’d be cutting about four years off your repayment term, according to our lump-sum extra payment calculator.

Why you might have money left over from financial aid

You might not think of your student loans as extra cash hitting your bank account. But once your school uses your loans to cover tuition, fees, and room and board, you might have some money left over. That’s key to understanding how your student loans are disbursed.

Federal student loans are sent directly to your school, typically via two disbursements during the academic year. If you’re a first-time borrower, your payout might be delayed by as much as 30 days. The same goes for grants if you have leftover FAFSA money.

The school applies the loan amount to your most essential academic expenses: tuition, fees, and room and board. What’s remaining (often called a credit balance) will usually be sent to you via check, direct deposit or a school debit account.

The student loan disbursement process is similar for private student loans. Lenders rarely send funds directly to you. More often, money from private college loans is disbursed to your school. After all, your lender needs your school to verify that you’re enrolled and are not attempting to borrow more than your cost of attendance.

You could, however, end up with leftover funds from your college loans if:

You plan to live off-campus, and your school refunds you for on-campus housing costs. You borrowed more than you needed. You scored a last-minute scholarship that made part of your loan amount unnecessary. How to avoid borrowing too much next time around

Though it is possible to return federal and private student loan money 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 correct amount the first time.

Do the math How much money are you receiving from other sources? Be sure to include scholarships, state grants, income from work-study programs, contributions from your parents, your own savings and earnings from part-time or summer jobs. How much is your cost of living? This total should include tuition, room and board, transportation and books and supplies. If you’re living off-campus, room and board refers to rent and a minimal food allowance. Any additional expenses are not the kind of things you should be spending student loan money on Exceptions may be money needed for tutoring, a software program for school or disability-related expenses. How much do you need to borrow? Subtract your estimated cost of living from the amount you are receiving from other funding sources. You don’t need to borrow any more than that. Choose an affordable school

If you have yet to enroll or are transferring, look closely at the cost of attendance for the schools you are considering. If your top 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 may be the one with the most substantive financial aid package.

You can easily pit schools against each other using our financial award comparison tool.

Andrew Pentis, Rebecca Safier and Sarah Li Cain contributed to this report.

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