The Sneaky Student Loan Loophole

Libby Kane
Posted

Man Taking Online College CoursesWhy take out a student loan? The answer seems obvious: to pay for your studies.

But what if we told you that people are using student loans for something else entirely?

That’s the latest from the Wall Street Journal, which explains how some Americans, struggling to stay employed and on top of their bills, are taking out the loans in order to obtain lower-interest, “good” debt that can help them make ends meet.

Of course, as student loans are for students, you do need to be enrolled in school to borrow … but part-time courses and online classes count. In fact, if you have existing student loans, becoming a student again gives you the opportunity to delay those payments. And because the government often doesn’t require credit checks, student loans are relatively easy to get.

Maybe too easy. According to the Journal, the number of students maximizing their borrowing power has risen since the recession, and a fair amount of that money is going to expenses unrelated to education. In fact, a report from the Education Department found that among eight online higher ed programs, the schools disbursed average loan amounts of over $5,000 to more than 42,000 students who weren’t, at the time, earning any credits. This is possible because loans aren’t meant to cover tuition only—they can also be used for room, board and essential supplies. And maybe, in this case, your “essential supplies” are groceries and electricity.

Even some part-time students who do intend to get a degree are turning to student loans to make ends meet in the meantime. As one man tells the Journal, he and his wife, another part-time student, have been “taking whatever we have left over [from student loans] and using it to stock up the freezer just so we have a couple extra months where we don’t have to worry about food.”

If you have student loans of your own (no matter how you’re using them), consult our step-by-step checklist to paying off your student loans.