What Is a Student Loan Refund? A Complete Guide

A student loan refund is money sent to you after your school applies your financial aid or loan funds to your tuition, fees, and other billed costs. Refunds aren't free money. They’re part of the loan amount you borrowed, which means they must be repaid with interest, unless you choose to cancel it.

Schools typically issue refunds within about two weeks, either by direct deposit or mailed check, and they're meant to cover costs your school doesn't bill directly, like books, supplies, or off-campus housing.

Here's what you need to know about student loan refunds.

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How student loan refunds work

When you take out a federal or private student loan, the funds are sent to your school to cover tuition, fees, and housing if you live on campus. If the loan amount is more than what you owe and results in a credit balance, the school must send you the refund within 14 days. 

Unless you advise your school to apply the refund to any future charges or you choose to cancel it, they'll send refund checks to you by mail or via direct deposit if you’ve provided your bank information. 

Private student loan refund policies vary, so check with your lender to learn how they handle leftover loan funds.

How to cancel a federal student loan refund

If you take out a loan as a parent or student and then realize you borrowed more than you need, you don't have to keep the refund. Federal student loan borrowers generally have 120 days from the date a loan is disbursed to cancel all or part of it without accruing interest or fees. 

With parent PLUS loans, the refund is sent to the parent unless you authorize the school to send it to your child instead. 

Your school (or your child’s school) will notify you if you’re owed a refund and will usually provide information about how to cancel all or part of your loan. 

What to do with a student loan refund

Some schools calculate financial aid as a “cost of attendance,” which includes estimated living expenses. If your actual costs are lower, you’ll receive a refund. The refund will still accrue interest and must be repaid, so don't treat it as discretionary income. 

Student loan refunds cover school-related expenses that aren’t billed to your school, like textbooks, laptops, off-campus housing, transportation, and living expenses. Avoid spending refunds on clothes, vacations, or unrelated credit card debt. The funds will still accrue interest and must be repaid, no matter how you spend them.

Learn More: How To Use Student Loans for College Living Expenses

Options for student loan repayment

As soon as you spend your refund, it becomes part of your loan, meaning you’ll likely have to repay it with interest. These are some tips to help you pay back your student loans:

• Contact your loan servicer: Your servicer can confirm your current balance, including any refunded amount and accrued interest, and explain your repayment options.
• Make extra payments: If you can afford it, paying down your loan balance, including a refund, can help reduce the total interest you'll pay over the life of the loan. Be sure to tell your loan servicer to apply the extra payment to the principal.  
• Consider an income-driven repayment (IDR) plan: If your payments are difficult to manage, an IDR plan makes your monthly payment a percentage of your income, which can make it more affordable.
• Refinance your loan: Refinancing your student loans could help you get a lower interest rate and a more manageable monthly payment. However, if you have federal loans, you’ll give up borrower protections like income-driven repayment, deferment and forbearance options, and eligibility for federal forgiveness programs.