Can Student Loans Pay for Housing?

Student loans can pay for housing and several other expenses, but there’s a limit to how much you can borrow.

Apartment buildings

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The short answer is, “Yes.” You can use student loan proceeds to pay for housing, whether you decide to live on-campus or off-campus while attending school.

Having said that, like most personal finance and college-cost topics, there’s a bit more to the answer. Here’s a rundown of what student loans can be used to pay for, how you can use student loans to pay for housing, and how much you might be able to borrow to pay for all of your costs of attending school, including housing.

How student loan borrowing works

When you take out a student loan to help pay for school, the funds are generally disbursed directly to your school, regardless of what the funds are going to be used for. In other words, if you have scholarships that cover all of your tuition and fee obligations to your school and you obtain a $10,000 student loan to cover housing and other living expenses, that money will be sent to your school even if you owe the school no money.

After your school receives your student loan proceeds, the money will first be applied toward any outstanding balance you may have. After that is done, you’ll receive the rest of your loan funds from your school, either in the form of a direct deposit or a check.

For example, if your tuition and fees for the semester add up to $5,000 and you receive $7,500 in student loans, the money will be sent to your school and will be used to pay the $5,000 balance first. Then, the remaining $2,500 will be sent to you.

What can student loans pay for?

Student loans are designed to help with any and all expenses associated with attending college. This can include, but is not necessarily limited to:

  • Tuition
  • Fees
  • School supplies
  • Housing
  • Meals
  • Transportation
  • Other necessary costs of completing your degree, such as a laptop computer

Having said that, in practice, you can use your excess student loan proceeds (after your tuition, fees, and other direct obligations are paid) for virtually whatever you want. As I mentioned, the school sends any excess financial aid directly to you. The money will be deposited in your bank account and there’s no need to track your expenses to keep your lender happy. In fact, while it’s not recommended, it’s not uncommon for students to pay for things like spring break vacations with student loan money.

How much can you borrow?

One important thing to know is that while you can use student loan proceeds for a variety of expenses, including housing, there are limits to the amount of money you can borrow. In other words, the student loan market is designed so you can’t borrow enough to rent a luxurious house with your loan proceeds.

Specifically, federal student loans have annual borrowing limits that depend on your status as a dependent or independent, as well as your year in school. As of the 2018–19 school year, here are the federal student loan annual borrowing limits:

Year in School Dependent Student Independent Student
First-Year Undergraduate   $5,500 ($3,500 subsidized) $9,500 ($3,500 subsidized)
Second-Year Undergraduate $6,500 ($4,500 subsidized) $10,500 ($4,500 subsidized)
Third-Year and Beyond Undergraduate $7,500 ($5,500 subsidized) $12,500 ($5,500 subsidized)
Graduate or Professional N/A $20,500 (all unsubsidized)
Aggregate Loan Limit $31,000 ($23,000 subsidized) Undergraduates -- $57,500 ($23,000 subsidized) Graduate/Professional -- $138,500 ($65,500 subsidized), including undergraduate loans.

Data source:  

Because these limits are often not sufficient to cover the entire cost of attending school by themselves, many people seek loans from alternative sources.

On the federal side of the equation, there are PLUS loans available to parents of dependent students as well as directly to graduate students. There’s also a large and growing private student loan market that’s designed to help borrowers bridge the gap between Federal Direct Loans and their total financial need. With these options, you can generally borrow up to the cost of attending your school, minus any other financial aid you receive.

Cost of attendance example

I know that “cost of attendance” sounds like a vague number, but it’s actually a specific figure that is published by each individual college and university. To illustrate this concept and how it affects the student loan process, let’s take a look at a real-world example:

A quick search on the website of my alma mater, the University of South Carolina, shows a “cost of attendance” page that breaks down the school’s estimated cost of attendance by residency (in-state or non-resident) as well as by whether the student chooses to live on- or off-campus.

For our example, here’s the school’s annual breakdown of its estimated cost of attendance for an in-state undergraduate student who chooses to live off-campus:

Year in School Dependent Student Independent Student Expense Estimated Cost
First-Year Undergraduate   $5,500 ($3,500 subsidized) $9,500 ($3,500 subsidized) Tuition and Technology Fee $12,618
Second-Year Undergraduate $6,500 ($4,500 subsidized) $10,500 ($4,500 subsidized) Housing $8,334
Third-Year and Beyond Undergraduate $7,500 ($5,500 subsidized) $12,500 ($5,500 subsidized) Meals $2,672
Graduate or Professional N/A $20,500 (all unsubsidized) Books and Supplies $1,065
Aggregate Loan Limit $31,000 ($23,000 subsidized) Undergraduates -- $57,500 ($23,000 subsidized) Graduate/Professional -- $138,500 ($65,500 subsidized), including undergraduate loans. Miscellaneous/Transportation $4,232
Total Cost of Attendance $28,921

Data source: University of South Carolina

Here’s why this is potentially important to you as a student loan borrower. Let’s say that for the 2018–19 school year, you’re a third-year dependent undergraduate and you have $10,000 in miscellaneous scholarships and grants.

Looking at the table of federal borrowing limits in the previous section, you’ll see that you’d be eligible for $7,500 in federal student loans. Based on the University’s estimate, your total cost of attendance for the year exceeds your scholarships, grants, and federal student loans by $11,421.

If you were to apply for a private student loan, or if your parents were to apply for a PLUS loan, this is the maximum amount of additional student loans you’d be allowed to obtain, regardless of the lender’s maximum annual loan amount (if any). In other words, the amount you can borrow for housing and other expenses depends on your school’s estimate of how much those expenses are likely to cost.

The bottom line on using student loans to pay for housing

Housing is considered to be one of the costs of attending college, so paying for housing -- either on-campus or off-campus -- is an acceptable use of student loan proceeds. Generally speaking, however, the maximum you’re allowed to borrow is determined by your school’s published cost of attendance, so the amount of money you can borrow for all of your expenses (including housing) must adhere to a reasonable limit.

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