Students spend financial aid refund checks, finance professionals offer advice
It's financial aid refund season again — a time when students become magically richer overnight, or so it may seem.
After aid, whether federal or private, is dispersed to student accounts, there is often a chunk of money left over given to students as either a direct deposit or refund check.
Having just received about $2,000 in her bank account after disbursement, Bay Port senior Laura Stoeckle spent her refund check on new tires for her car.
“I decided to buy the tires after I received my check,” Stoeckle said. “I desperately needed them, and I think it was worth it.”
Stoeckle’s $518 new set of wheels still allowed her to finish paying this semester’s rent with the rest of the refund.
Although the money was spent on something substantial for Stoeckle, Assistant Professor of Finance and Law Colbrin Wright said spending the money should be dependent on financial need.
“Don’t borrow money you don’t need,” Wright said. “You have to pay it back, but with interest too, and that isn’t fun.”
But Wright said it is smarter to use the refund check instead of opening a credit card to purchase necessities.
“The average interest rate for a student loan is at 6.8 percent, while a credit card interest rate for students is above 12 percent,” he said.
Battle Creek junior Justin Emmons said he is planning to use his $1,000 refund for food this semester.
“I am going to take some of it and pay for groceries, because my fridge is empty,” he said.
Emmons said he also plans on going to the casino, paying bills and enjoying some celebratory drinking after receiving a large refund.
He said he doesn’t rely on the check because he is employed, but he could see himself needing it if he didn’t have the reliable income.
“If a student is working and has enough money to pay extra living expenses, it’s foolish to take out a loan,” said Diane Fleming, Office of Scholarships and Financial Aid associate director.
Students will have 10 years to pay off a student loan, including interest, if they follow the standard payment plan, she said.
“Just say the average CMU student is probably going to come out between $23,000 and $30,000 in loan debt,” Fleming said. “If they do the standard repayment, that’s going to cost them around $40,000 because of interest — so that’s an expensive pizza or six pack.”
When it comes down to choosing to return the refund check or spend it, Wright said it’s a judgment call.
“If you absolutely need the money, you need it,” he said. “It’s all about investing in education, but students need to be honest with themselves on how they’re spending it.”