Student loan refund check

Don’t touch that refund check until you listen to this

Cashing student loan refund checks seems like a great idea—until you realize you’ll be paying the bill for the next 20 years. See why you shouldn’t touch that money unless you absolutely have to.

Podcast transcript

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PETE: You’re listening to How Not to Move Back in With Your Parents, here on the IU MoneySmarts radio network. I’m Pete the Planner joined by Alex. Alex, hello.

ALEX: Morning, this is gonna be a good one.

PETE: It always is. Today we are talking about that student loan refund check you get. You get really excited, you get this big check in the mail. But what’s it for? What are you to do? To help us understand that, we’re talking to the Director of Student Services Roy Dernal; he’s on the IU Bloomington Campus. Roy, first of all thanks for joining us here on the podcast today.

ROY: You’re welcome, yes.

PETE: All right, so Roy when someone gets a student loan refund check, what’s the mechanism that activates a check going out to a student? And sometimes a check so large that it it creates the perception that the student’s actually having a good day.

ROY: Sure, sure, well what happens is a student who’s receiving any kind of financial aid, it could be scholarship. It could be student loan, it could be a federal grant, any kind of aid that will be applied to their bursar bill. First is pay down the bursar charges. And then any remaining funds for that enrollment period is sent to the student as a refund.

PETE: And so, how big can these checks get? I mean, I’ve seen and heard stories of a few thousand bucks, but Roy, what’s typical?

ROY: Well, I don’t know that I have typically we’re talking about just a few hundred dollars. But it could be a situation where it could be more than a $1,000 dollars, sure.

PETE: Alex and you heard stories of people getting student loan refund checks of any size?

ALEX: Yeah, and kids love them. Because they’re like, I’ll get this and not send it back to my parents. I’ll keep it for myself, and spend it. And tuition reimbursement and stuff like that. So kids love getting those.

PETE: And Roy, it is, in many cases, raw debt, is it not? It is raw loaned money.

ROY: That’s exactly right. If the student has a federal loan, or in some cases parents use a parent loan, that refund could actually be loan money. So for that reason, students and parents need to think really carefully when determining the amount of loan if they’re using a student loan for that enrollment period. They wanna be very careful and only borrow the amount that they need for the bursar bill or for the educational cost, and not go beyond those educational cost.

PETE: Now, is the check always come to the student, in the student’s name, or does it ever go into the parent’s name?

ROY: There are some situations with the federal parent PLUS loan. A refund that’s generated from that loan program would actually go to the parent. But a federal direct Stafford loans, private students loans, those all go directly to the student.

PETE: And what’s the expectation as to what that money is to be spent on?

ROY: Sure, well those should be spent educational costs. So, we’re talking about things like, of course tuition and fees will already be taken out through the bursar’s office. But there could be educational costs that are related to your class. You might need to buy supplies for a fine arts class. Or there could a class related expense that would be educational, but also your room and board. So if you’re living off campus, you would need to use this money to pay rent, utilities with the apartment or house that you’re renting.

PETE: And is it possible for someone to get a student loan refund check if they don't cash it or don’t deposit it? What’s the ramifications there? Or should they deposit it and give it back? What’s the way to say, no, thank you?

ROY: Well, they really ideally would make that decision before the money is refunded, but it’s not too late even after the refund happens. If the student has a paper check, they can return that paper check to the office of the bursar. And ask the bursar to reapply that and send it back to the, in the case of a loan, it would go back to the lender. If it’s a direct deposit, it’s a little bit more complicated. But they would need to work with the office of the bursar to have the money pulled back out, at direct deposit. And then the same process, and applied to the loan.

PETE: Are people doing a lot of direct deposits on that student loan refund? Is that the trend now?

ROY: Yeah, yeah, the trend right now is direct deposits, right.

PETE: Man, I’m glad you're joining us on this because to me, there’s a couple things that stick out. You mentioned ideally before that money and that check is cut or that money’s deposited. That the decision has been made that the student doesn’t need those extra funds. But Roy, I gotta think that idea’s in the minority. I gotta think most kids and parents don’t think that far out.

PETE: Yeah, well you’re exactly right, Pete. Many parents and students, once they get the full financial aid, everything kind of in place, they let everything else stay kind of on automatic pilot. But the reality is your costs could vary a little bit from semester to semester. So you really need to look closely at your each semester bill. Make sure that you understand what scholarships, grants, loans, whatever kind of financial aid, you understand what’s being applied for that semester. And as I mentioned earlier, if you’re getting students loans, or in the case of parent loans, you need to look very closely. And only borrow the amount that you need to to meet those educational costs. You don’t want to borrow money for things that are not really educationally related.

ALEX: And that’s a great point too. Because I know as students at IU, we get letters from IU that says how much loans we’re expecting for that semester and things like that. So you need to look at how much you qualify for loan, and then how much you going to actually need. Specifically for, of course, as you mentioned, school expenses related only, not on food and lifestyle type expenses. keep it more towards the tuition, and the room and board, if you need it, the more education based expenses. But that's extremely important, and IU does a good job of keeping students informed of that, too.

PETE: Yeah, and Roy, I gotta think obviously organizations and departments like yours, and the department of financial literacy certainly go to serve the students and educate them. But how much does your office interact with parents and let them understand the sort of checks their students are getting back? Or is it because the agreement is with the student, and the student is an adult, the parents don’t get much information on the refund?

ROY: Well, this is a situation where we’re doing most of the communication with the student. It is the student’s account. In many cases, it is the student’s money. The student’s grant, scholarship, loan. So we are doing most of that communication with the student. As I mentioned earlier, in the case of a parent loan, then there would be communication with the parent. What I would encourage is that parents can have their students set the parent up as a third party authorized payer. And can view their student account, their bursar bill online. So then that gives the parent the opportunity to look at that bill on at least a semester by semester basis, if not a month by month basis.

ALEX: And that’s a great point. I actually do that with my parents. It makes it a lot easier so you don’t have to, you’ll get emails. A new bursar bill available, and you have to forward it to your parents every time. Instead you can set it them up as a third party, which I’ve done personally. And they can go in and get it themselves, get the email notifications themselves. And it also makes it a lot easier for them to help you out for different types of needs, beyond just your student loan, that will have to deal with school expenses as well. Cuz it’s all kind of housed in that one start, whatever school you may go to your student central location online.

PETE: Roy, does your office care if students return their refund checks or do you have a preference either way? Is it a big pain If people are bringing all these checks back in, or what are your thoughts?

ROY: Well no, it’s not a pain, in fact, we want to help students keep from getting overburdened with loan debts. So affordability loan debt is one of the topics that are very important on campus and around the country. So returning money that isn’t being used for educational purposes, absolutely we’re happy to help students do that.

PETE: There are more resources at moneysmarts.iu.edu that we encourage people to go find. Alex, what are the takeaways from this here episode with Roy Durnal?

ALEX: Yeah, do not waste that check if you get it back. Don’t go spending on everything because realize that it is debt. And that is not free money.

PETE: And sometimes it’s debt, a lot of times is debt. Is not always based on awards and scholarships, but many times it is.

ALEX: Right, right, just don’t spend it like it’s free money.

PETE: Right.

ALEX: In general, you shouldn’t. And then also, realize if you need to get your parents involved to help out with that, set them up as third party access. Keep them informed of what’s going on. Do not use your student loans for personal expenses. Those are the main things.

PETE: Excellent, well, Roy we appreciate you. First of all, all the work you do for IU and its students. And certainly appreciate you joining us here on the podcast today.

ROY: Okay, thank you.

PETE: All right, so that’s been it for How Not to Move Back in With Your Parents here on the IU MoneySmarts radio network.

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