Will colleges give refunds?
Some colleges and universities have announced they’ll be issuing partial or prorated refunds, specifically for room and board. If students are coming back next semester, they may receive the refund in the form of a credit to be used in the Fall semester. In this case, students don’t need to take any action. If students are graduating or not planning on returning, they may request a refund from the school directly. Many colleges are encouraging students to use online portals to make the request.
If you’re not sure whether your school is granting partial or pro-rated refunds for room and board, call or email your school’s financial aid office, or visit their website.
The decision to refund may depend on a variety of factors (including whether instruction will continue virtually, if students were permitted to stay on campus, etc.) and is determined by the schools. If your school is granting a refund (whether it’s related to COVID-19 or general financial aid refunds typically issued at the beginning of a semester), there are some universal best practices on what to do with it.
What happens if you get a refund
So, you’ve got a refund in your hands. Now what?
Well, the answer will vary from family to family. What might make the most sense for one student may mean something different for another. And, the answer may change depending on how you paid for college costs in the first place (and especially if you’ve borrowed via student loans).
With the uncertainty that COVID-19 brings, refunds may be critically important in families’ plans to manage and sustain finances. If you’re experiencing financial hardship as a result of the pandemic, for example, you may be looking to use the refund toward essential expenses, like rent, groceries, utilities, etc., and this may in fact be the best use of those dollars.
What’s key to know, though, is how using your refund now may affect you later.
How to use your college refunds
The most important steps in managing your college refund are simple: know what it means for the long-term, and create a plan to move forward.
Do you have student loans? If the answer is yes, refunds (again, from circumstances related to COVID-19 or from the beginning of the semester when your financial aid kicked in) can help you lower your total loan costs. How? By giving the money back to your servicer.
If you return all of a portion of your refund to your federal or private student loan servicer, you’ll end up owing a smaller balance and paying less interest. This may seem like a not-so-exciting way to ‘spend’ your refund, but it may be the most financially responsible. If you have student loans, this money isn’t a freebie – you’re going to have to pay it back, with interest, over time. If you make the choice to turn it back over to your lender now, your future self will thank you.
If you don’t have student loans, or if your current needs outweigh the benefits of lowering your loan costs, you’ll want to have a well-crafted plan on how to spend your refund. To create that plan, ask yourself the following questions:
- Are your priority needs met, like shelter, food, etc.? The refund, if necessary, may help you stabilize your finances while you navigate the new reality in light of COVID-19.
- Do you have high-interest debt, like credit cards? It may make sense to use some of your refund to lower or eliminate that debt.
- What about an emergency fund? According to our research, just two in ten college students have an emergency fund. A student refund check may be a great opportunity to start one.
- Are you still in school and anticipating some upcoming education-related expenses? Your refund may help cover some of those costs for now.
When thinking about how to spend your student refund, remember that in many cases, this isn’t free money. If you choose to spend the funds rather than handing it back over to your student loan lender (assuming you have a student loan), you’ll be paying it back later – with interest.
If you didn’t borrow for school, use this college refund as an opportunity to begin (or continue) building financial security. In short, make sure the decisions you make today will pay off for you tomorrow.