Spend now, pay with interest later

We have just experienced the time of the semester that all college and university students look forward to:  Student net loan proceeds checks, commonly known as a refund check. 

We all enjoy receiving all the money that is handed to us, but do we really know where the money came from and how we should actually spend it?

First, let me explain what the student net loan proceeds check is. A student applies and receives a federal or private loan to pay for school expenses. These expenses typically include tuition and fees, room and board, and other school-related incidentals (textbooks, writing supplies, etc.).  If there is any money left, it is returned to the student as a refund.

Many students start making plans for their excess refund as soon as they find out how much they will receive.

Having an extra $1,000 or $2,000 in my bank account just for going to school is really nice.  But let's face it.  This is not free money. In fact the term "loan refund" is an oxymoron. We have to repay the "refund" and in most cases, we could end up repaying more for the money than was actually refunded.

If possible we can start repaying the loans – with interest and other fees – while we are still in school. 

Or we can defer the interest and the entire loan payment until we graduate.

For example a $1,500 loan refund used for shopping sprees at the mall, homecoming events and spring break may actually end up costing twice as much once the interest is calculated. Having the extra money can be a wonderful opportunity for you to pay some bills or that credit card you acquired against your better judgment.

   Save your loan refund money for the next academic year so that you only have to borrow a smaller loan. If you are able, avoid a loan and spend time looking for free money, like grants and scholarships.

According to an article in The Washington Post, the unemployment rate for African Americans is supposed to reach a 25-year high in 2010. Times have changed since our parents and those before us attended school. Going to college and getting a job is not as easy. 

Trust me.  Reality will hit, even if you do not have a job when you graduate, those loan repayments are coming.