School loans can be used to pay for costs other than tuition, books and fees. In fact, school loans are often used to pay for housing, food, car notes and other essentials of life during school years. By having loan money pay for housing, transportation and other needs, any extra money that is freed up can be used for paying bills for items not specifically envisioned by the school loan program, such as credit card debt, but student loans have special rules that should be evaluated before using this strategy.
Purchases Explicitly Permitted by School Loan Programs
Federal student loans explicitly provide for certain costs other than school. For example, school loans may be used for rent, food, utilities and transportation. Loan funds may not be used for items that are not related to these broad categories. However, the limitations on how you use the loan do not relate to your money that is no longer being used for housing or other covered costs.
Student Loans Often Have Lower Interest Rates
Student loans typically have interest rates that are lower than other forms of debt, such as credit card debt. Student loans from the federal government currently have interest rates around 6.8 percent. Conversely, credit card debt can often have interest rates in excess of 15 percent. Assuming that one does not add new debts while in school, swapping away from credit card interest rates and into school loan rates can save considerable amounts of money.
Student Loans Are More Onerous
While there is an opportunity to lower the interest rates being incurred by using student loans in lieu of credit card debt, student loan debt cannot be removed by declaring bankruptcy and, in fact, is nearly impossible to escape without paying. For those who believe that there is a potential of declaring bankruptcy, using student loans instead of unsecured debt, like credit cards, is probably a bad idea.
Austerity is Essential in Paying Bills with Student Loans
There are limits on the amounts available from student loans, and, more importantly, there are limits on the amount that you will be able to repay in the future. With that in mind, paying bills while in school requires budget tightening. This might include living with roommates, eating at home more often and other steps. Shifting to student loan debt only makes sense if the level of student loan debt is manageable and you are willing to take on the long repayment term associated with many school loans, which can be as long as 30 years.