Will Your Refund Check Come Back to Haunt You?

Posted by CapWay in CollegeOctober 5, 2022(Last Updated October 5, 2022)3 min read
Key Takeaways
  • A student refund check is excess money left over from your financial aid package after your school tuition, and other fees have been paid in full.
  • Generally, a school will pay your school expenses with your scholarships and grants first before using any student loan money.
  • If the refund check comes from student loans, it’s important to use the money wisely or it else it could hurt your financial health after graduation.
Are you ready to make some real money moves?

In some situations, your college may give you a refund check. With hundreds or thousands of dollars at your disposal, you're thinking about (or maybe already know) how you're getting ready to use the money. For example, you could use it to go shopping, purchase college textbooks, help your mom with bills, or put the cash in an emergency fund. However, the refund check may not be free money, and if you are not careful, it may come back to haunt you after your graduate. 


How Student Refunds Work 


When you apply for financial aid, the total amount will be sent over to the school so they can remove the outstanding balance from your student account. However, sometimes, the money from the financial aid package can exceed the amount owed to the school. Consequently, the credit balance in your account caused the student financial services to issue a refund check.


When getting a student loan refund, determine whether the money was from a loan, grant, or scholarship. If your tuition and other school fees are paid in full then your school will give the remaining amount back to you via check or directly to your bank account


Recommended Read: How to Pay for Your College Education with Scholarships


Grants and scholarships are FREE money that you don't have to repay. However, if your student loans was used to pay for your school tuition and fees and there was excess money left over then that can be the reason for your refund check. But if you receive a refund check that came from your student loan balance, then you will eventually have to repay the money with interest after you graduate. Interest is a way for financial institutions to make a profit from the money that you owe. 


Benefits of a Refund Check

 

The main benefit of receiving a refund check is having excess money at your disposal. If you do receive a refund check, rather than using the money for a shopping spree, here are a few other alternatives: 

 

  1. Return the money back to your school: If you don’t need the money, why take it? You can give it back to the school and you don’t have to worry about repaying that money back after you graduate.
  2. Books/school supplies: If you need extra money to buy your college textbooks and school supplies, this would be a smart way to use your money. 
  3. Living expenses: If you are living off-campus, you may need your refund check to pay a portion of your rent, groceries, or transportation fees like gas or a city bus pass. 


Disadvantages of a Refund Check


The main disadvantage of receiving a refund check is misusing the funds. If your refund check came from a student loan, remember that it’s not free money and must be paid back in full (and sometimes with interest) after you graduate. For example, unsubsidized federal student loans accrue interest from the moment you borrow them. 


Recommended Read: Here’s What You Should Know Before Completing the FAFSA


The Money Wrap-Up


Depending on your situation, your student refund check could come from excess grant money or the remaining student loans left over from paying your tuition. Knowing exactly where the money came from is crucial. Before making any major decisions, it’s important to remember that your student refund check (if it’s excess money from student loans) is attached to interest fees and must be repaid after graduation.

 

There is no reason to feel ashamed or guilty for receiving a refund check and having to spend it on items to help you get through school. If you received a refund check then your school thought you may need it. If you manage your refund check with intention, then this is a great exercise to help you manage other areas in your life.

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