Got an unexpected windfall from your university? Before you spend that “extra” cash, there’s a critical detail you need to know that could save you thousands in the long run. Don’t make a costly mistake with your balance.

College is notoriously expensive. A higher ed degree is so costly that earning such credentials can easily cause a student or family to rack up tens of thousands of dollars in debt, even hundreds of thousands in some cases. And we’ve all heard the phrase “broke college student.” It feels like the expenses never end. But what takes many new college families by surprise is that when a sizeable chunk of money shows up in a student’s account, it can be a shock that immediately invites the questions of how and what to do with it.

Well, the how isn’t that difficult to explain. Borrowers are typically encouraged to apply for as much assistance as possible. And direct costs can be lower than the approved amount, creating a surplus of sorts. Subsequently, colleges generally deposit the difference into students’ accounts. But that still leaves the question of what to do with those funds.

How to Make the Most of Your Student Loan Surplus

When a student loan refund check arrives, it is tempting to treat it like a financial bonus. However, because that money is borrowed and accumulates interest, it is legally and practically meant to cover the rest of your total cost of attendance. Here are four smart, permitted ways to handle those leftover funds:

• Secure textbooks and required technology. Use the funds for textbooks, access codes, specialized software, or a reliable laptop. These are critical tools that directly impact academic success.
• Cover off-campus housing and groceries. If you live off-campus, these funds can go directly toward rent, utilities, and a basic grocery budget. It replaces the room-and-board fee you would otherwise pay directly to the school.
• Pay for commuting and transportation. Reliable travel to campus is essential. You can apply the money toward public transit passes, gas, parking permits, or necessary car maintenance like new tires or an oil change.
• Return the excess money immediately. If your basic living expenses are already covered by a job or savings, the absolute smartest move is to send the extra money back to the lender.

Most importantly, be aware of the 120-Day Rule. If you return the unused funds to your loan servicer within 120 days of disbursement, it is treated as a loan cancellation. This means the lender removes that portion of the debt, and you won’t owe any interest or origination fees on the returned amount.

Parents, what have your experiences been, and what would you add?