Can You Return Unused Student Loan Money?

When you take out student loans, you’re agreeing to repay every dollar — whether or not you end up needing it all. Sometimes, you might borrow more than your actual education expenses require. If that happens, you may be unsure what to do with the leftover funds — or whether you can return them to avoid unnecessary debt.

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Can you return unused student loan money?

You can usually return unused student loan money, but the process depends on whether your loans are federal or private. 

Federal student loans come from the U.S. Department of Education and follow a standard process.

“For federal loans, they give you a 120-day grace period to return unused funds without being charged any interest or fees. I like to think of this like any return policy at a store,” explains Emilio Cabuto, certified financial planner (CFP) at Verus Capital Partners. “If you miss that window, interest starts adding up from the day the loan was first paid out, except for subsidized loans, since the government covers that interest while you’re in school.”

Private student loans, on the other hand, come from banks, credit unions, or online lenders — and each lender sets its own rules. “For private loans, the process depends on your lender,” adds Cabuto. “Always check your loan agreement and act fast.”

How to return unused student loan funds

Here’s a step-by-step process on how to return unused student loan funds.

1. Review the amount

Figure out exactly how much of your loan money you don’t need. For instance, if your living costs are lower than expected or you’ve received extra scholarships or grants, you might have borrowed more than necessary. Before returning any funds, carefully compare the amount you have against how much you expect to spend, then calculate the specific amount you want to send back.

2. Contact your school’s financial aid office

Reach out to your school’s financial aid office to let them know you want to return the unused student loan funds. This is easiest to do before your loan is disbursed. If your loan has already been disbursed, there are different processes depending on the timing. 

You may have 14 to 30 days to cancel all or a portion of your student loan after you receive notification of your rights to cancel your loan. But each school can have different timetables, so review what applies to you. Within this time frame, your school must process your cancellation request. 

After that window closes, you can contact your school’s financial aid office, but you may have to return the funds directly to your loan servicer. 

3. Reach out to your loan servicer or lender 

If your school is unable to process the request to return or cancel the funds, contact your loan servicer or lender. To return federal student loan funds, find your loan servicer on your Federal Student Aid (StudentAid.gov) account. Go to the “My Loan Servicers” section. If you want to return unused private student loans, contact the lender. Each lender may have a different process and timeline. 

Federal student loan funds that are returned within 120 days of disbursement won’t accrue interest or fees. After the 120-day period, you can still return the funds, but interest and fees apply. It will also be processed as a prepayment on your loan. So, instead of a typical return, you’ll essentially be paying back unused student loan funds. 

If you have private student loans, check with your lender on the timeline and process. Interest may accrue on the loans. For example, SoFi notes that borrowers can cancel a second disbursement of their student loan. 

After a disbursement, the school can send the loan disbursement refund to SoFi, which then sends the amount to its loan servicing partner. If the loan funds are disbursed to you, then you can return them to the lender as an early payment.

When can you return student loan money without interest?

If you want to return student loan money and avoid paying interest, timing and the type of student loan matter. You must return federal student loan funds within 120 days to avoid interest and fees. After that, any funds you return may be subject to both interest and fees. 

Whether you can avoid interest and fees when returning private student loans depends on the policies of the private lender. 

For example, private lender Ascent notes that the company accepts refunds within 60 days of disbursement, though publicly available details do not clearly confirm whether interest or fees will apply. Check with your private lender and review your loan agreement for specific policies.

What happens if you don’t return unused student loan funds?

Student loans can be a tool to pay for college. But if you realize that you don’t need all of the loans, you should consider returning your unused student loan money. 

“Any funds you keep will accrue interest immediately and must be repaid like any other portion of the loan, so it’s best to return unused money as soon as possible if it isn’t truly needed,” says Erik Kroll, a CFP and president of Student Loans Over 50.

If you don’t, you could pay unnecessary interest charges on your higher loan balance. That could affect your monthly payments and the total amount you pay over the life of the loan. 

Let’s say that you have $25,000 in student loans, but thanks to scholarships and living at home, you only really need $20,000. Your average interest rate is 7% and your repayment term is 10 years. Using Credible’s student loan calculator, you can compare and see the differences. 

If you were to return $5,000 and have a student loan balance of $20,000 at 7%, your monthly payment would be $233. That’s $58 less than if you had borrowed $25,000. You’d pay $1,960 less in total interest, and your total payment over the life of the loan would be $6,960 less. That could make a meaningful difference in both your repayment and your financial life. 

Also, if you miss the 120-day window to return federal student loan funds, you’ll be charged interest and fees on that amount. At that point, any unused student loan money you send back is treated as an early payment, not a cancellation or return. If you decide to keep the funds, you’re paying more in interest on money you didn’t really need. 

Should you return or keep excess student loan money?

Having excess student loan money can give you a financial cushion for any unexpected school expenses. But returning the excess student loan money can reduce your loan balance and make repayment more affordable and manageable. Here are some pros and cons to consider when deciding between returning or keeping excess student loan money.

Everyone’s situation is different, so consider these pros and cons to help you decide whether to keep the student loan funds or return them. Just be aware of the potential consequences. 

“Unfortunately, keeping that extra money is one of the quickest (and very avoidable) ways to start building unnecessary debt right out of the gate,” Cabuto says. “It’s uber important to return the money you know you won’t need before a small balance turns into a painful lesson on compound interest.”