Should You Return Unneeded College Aid?

Summary

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WSJ Your Money Briefing: Should You Return Unneeded College Aid?

Date: April 8, 2021
Host: J.R. Whalen
Guest Contributor: Cheryl Winokur Monk
Podcast: WSJ Your Money Briefing

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Episode Overview

This episode tackles the common dilemma faced by students and families: What should you do if you receive more financial aid than you need for college expenses? WSJ contributor Cheryl Winokur Monk joins host J.R. Whalen to discuss scenarios that generate surplus loan funds, the best practices for returning unneeded aid, how different types of loans may impact your decision, and the timeline for returning excess funds.

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Key Discussion Points and Insights

1. How Surplus College Loan Funds Happen

• Many students and families simply accept the full amount of federal loans offered without considering actual needs.
• Scenarios leading to excess funds:
  • Accepting all offered aid without adjustment
  • Securing a summer job, thereby requiring less loan money
  • Receiving a scholarship after loan applications have already been processed
• Quote:
  "Some families just check off the boxes on their financial aid officers, not realizing they can accept some part or even none of the loan money that's been offered."
  — Cheryl Winokur Monk [01:58]

2. Options for Unspent Financial Aid

• You are not required to return unneeded loan funds—but be cautious with usage.
• Funds should be used for education-related expenses (not just tuition—can include computers, living expenses, or even food).
• Even though there isn’t strict oversight, using loan money for non-educational purposes is against the rules and not in your best interest.
• Quote:
  "It's kind of like an honor system... they're not supposed to be used that way, and it's really not in the student's best interest to do so."
  — Cheryl Winokur Monk [02:58]

3. Subsidized vs. Unsubsidized Loans

• Subsidized Loans: The Department of Education pays the interest while you're in school (at least half-time) and for the first six months after leaving.
• Unsubsidized Loans: Interest accrues during school and grace periods if you choose not to pay, and is added to the principal ("capitalized").
• Choice between subsidized and unsubsidized can affect the financial impact of holding onto extra funds.
• Quote:
  "With a subsidized loan...the Department of Education will pay the interest. Whereas on an unsubsidized loan...that interest is going to accrue, which means it's going to accumulate and it'll capitalize."
  — Cheryl Winokur Monk [03:18]

4. Deadlines and Process for Returning Excess Aid

• There is a 14 to 30-day window (varies by school, spelled out in a letter to the student) in which schools must return the funds on your behalf after you ask.
• Even after this deadline, schools are typically cooperative—some will return funds up to 120 days post-disbursement.
• After 120 days, you can still return unneeded money, but you'll work with your loan servicer and may be charged interest or fees.
• Quote:
  "Many schools are still willing to send the funds back on your behalf...even if you miss the school's stated deadline, just ask what your options are."
  — Cheryl Winokur Monk [04:01]

5. What If You Need the Money Later?

• Loan money can be re-accessed during the academic year without filling out another FAFSA.
• You must request the funds from your aid office and follow their procedures; it’s a simple process, usually involving a form or short conversation.
• Quote:
  "During the academic year you can get that money and you don't have to fill out another FAFSA or anything like that. You just have to talk to your aid office."
  — Cheryl Winokur Monk [05:07]

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Notable Quotes and Memorable Moments

• Accepting Full Aid Without Need:
  "Some families just check off the boxes on their financial aid officers, not realizing they can accept some part or even none of the loan money that's been offered."
  — Cheryl Winokur Monk [01:58]

• Loan Funds Use – Honor System:
  "It's kind of like an honor system... they're not supposed to be used that way, and it's really not in the student's best interest to do so."
  — Cheryl Winokur Monk [02:58]

• Types of Loans and Interest:
  "With a subsidized loan...the Department of Education will pay the interest. Whereas on an unsubsidized loan...that interest is going to accrue, which means it's going to accumulate and it'll capitalize."
  — Cheryl Winokur Monk [03:18]

• Returning Unneeded Money:
  "Many schools are still willing to send the funds back on your behalf...even if you miss the school's stated deadline, just ask what your options are."
  — Cheryl Winokur Monk [04:01]

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Timestamps for Important Segments

• [01:32] – National context on student debt and introduction to the topic of returning extra aid
• [01:58] – Common scenarios resulting in surplus loan funds
• [02:30] – Guidance on usage restrictions for financial aid funds
• [03:10] – Explanation of subsidized vs. unsubsidized loans
• [04:01] – Deadlines and process for returning unneeded funds
• [05:07] – Steps for reclaiming returned funds if needed within the academic year

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Conclusion

Host J.R. Whalen and contributor Cheryl Winokur Monk emphasize that taking only what you need from student loans can protect you from unnecessary debt later. If you find yourself with excess aid, the best practice is to work with your financial aid office to return it promptly. Should you need those funds later, the process to reclaim them is straightforward. The episode encourages open communication with school aid offices and awareness of loan details to make the best financial choices as a student.

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Transcript

[A]

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[B]

Here's your money briefing for Thursday, April 8th. I'm J.R. weyland for the Wall Street Journal. College can be one of the biggest expenses in a person's life. And many people rely on federal loans to pay the bill. But what if you get more money than you actually need?

[C]

Some families just check off the boxes on their financial aid officers, not realizing they can accept some part or even none of the loan money that's been offered. Other times, a student might find a summer job and not need to borrow as much as expected.

[B]

So should you keep the extra money or pay it back? Our contributor, Cheryl Winoker Monk will be here with answers after the break.

[D]

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[E]

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[D]

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[E]

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[C]

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[B]

Americans are currently holding more than $1.5 trillion in student debt. But many of them applied for more money than they actually wound up needing. So what should they do with that extra cash? Contributor Cheryl Winoker Monk is here to talk about the options. Cheryl, thanks for being here.

[C]

Thanks for having me.

[B]

So you know, Cheryl, for a lot of college students and families, every dollar of financial aid counts. But what kind of scenarios would create unnecess needed money that they could potentially send back?

[C]

It's actually interesting. Some families just check off the boxes on their financial aid officers, not realizing they can accept some part or even none of the loan money that's been offered. Other times, a student might find a summer job and not need to borrow as much as expected. Or the person might even receive a scholarship after having checked off the box for a loan. And if you receive a scholarship, let's say you were borrowing one thousand dollars and you got a fifteen hundred dollar or even a thousand dollar scholarship. You might not need that full amount of the loan or you may not need the loan at all.

[B]

Okay, so if somebody does have financial aid money left over, do they have

[C]

to give it back so you don't have to give it back? But you want to be careful how you use it. So you don't want to violate the terms of the Master Promissory Note you signed with the federal government for taking out loans in the first place. It really should be used for school related purchases. It doesn't have to be tuition though. So for example, it can be a computer or living expenses or even food, something like that. Something related to school.

[B]

Ah, okay, but do you have to show receipts? And is there somebody overseeing what somebody does with that money?

[C]

Not really. It's kind of like an honor system. And certainly people have been known to use funds for things like vacations or something not school related, but they're not supposed to be used that way, and it's really not in the student's best interest to do so.

[B]

But there are different kinds of loans out there, subsidized and unsubsidized. What's the difference? And how could that influence a student's decision to return money?

[C]

So with a subsidized loan, while you're in school at least half time and for the first six months after you leave school, the department of education will pay the interest. Whereas on an unsubsidized loan, if you choose not to pay the interest while you're in school and during grace periods, for example, that interest is going to accrue, which means it's going to accumulate and it'll capitalize. And so your interest will be added to the principal amount of your loan. Either way, you're ultimately going to owe the loan money back with interest. How much interest is going to vary depending on whether it's a subsidized loan or an unsubsidized loan.

[B]

Okay, but is there a timeframe by which somebody has to decide whether to return any unneeded funds?

[C]

Yes, and the timing can be a little confusing. So schools have to return the funds within 14 to 30 days of when it's disbursed to you if you ask them to do so. Whether it's 14 or 30 days is going to depend on the school, but that will be spelled out in a letter you receive notifying you of your right to cancel after this time frame. So the 14 or 30 days. Many schools are still willing to send the funds back on your behalf. Several loan officers actually told me that they're basically willing to do anything they can to help students avoid take out more loans than they need. So even if you miss the school's stated deadline, just ask what your options are. And remember, schools have to return it on your behalf within 14 to 30 days from disbursement, but they can do so for up to 120 days. So just ask. It's really in your best interest. Even if it's after 120 days, you can still return the money, but generally you'll be working with a loan servicer and not through the school. And you might be on the hook for fees or interest.

[B]

But let's say somebody returns unneeded money, but then they need it later on in the year, can they reclaim that money?

[C]

The loan money is always on an annual basis. So during the academic year you can get that money and you don't have to fill out another FAFSA or anything like that. You just have to talk to your aid office and follow the procedures that they ask you to follow to reclaim

[B]

the money so that money still belongs to them.

[C]

Well, it can belong to you. You'd have to request it. You can't just, like, expect it to be there for you. You'd have to talk to your aid office and request it again. But it's not this whole, you know, drawn out process. It's just. It's just really a matter of filling out a form or talking to an aid officer.

[B]

All right, that's Wall Street Journal contributor Cheryl Winokur. Monk. Cheryl, thanks for coming on the show.

[C]

Thanks for having me.

[B]

And that's your Money briefing. I'm J.R. whalen for the Wall Street Journal.

[A]

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