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Are Student Loans Funding College or Social Life?

Student Loans funding social life

Students loans are a saving grace for many families that otherwise wouldn’t be able to send their children to college. But that dream come true has turned into a nightmare for many parents as they learn those loans might be covering more than just tuition and a dorm room.

In a recent study from LendEDU, more than 30% of survey respondents admitted they’d be using some of their loan money to get some spring break r&r. If you’ve ever wondered how non-working college students from non-wealthy families can afford to jet-set to the Bahamas or Cancun for a week, you might just have your answer.

And, surprisingly, it’s 100% legal.

The Data Behind the “Party Loan”

The revelation about students using loans for spring break parties is only part of the problem uncovered by LendEDU’s study. In conjunction with data from Orbitz and the National Center for Education Statistics, they disclosed that over 7.7 million students in debt would be enjoying a spring break vacation in 2017. Of those students, 2.38 million will be funding their travel expenses with student loan money.

Bankrate.com’s chief financial analyst Greg McBride likened the situation to paying for a vacation with a credit card, except the debt is subsidized by hard-working taxpayers.

But spring break getaways are just the beginning. In the same study from LendEDU, over 23% of participants revealed they had used loan money for alcoholic beverages, including trips to the bar or grocery store purchases. Just over a third of respondents

Just over a third of respondents (33.8%) have used student loan funds to purchase clothing and accessories.

33.8% also indicated they used their college loans to pay for restaurants and takeout.

6.6% shared they had allocated some of their loan money to buy drugs.

And, last but not the least alarming, 5.8% of participants have used their college loan funds on gambling or sports bets.

Granted, some of these expenses, such as food and clothing, are a natural part of living away from the comforts of home. College students in dorms may not have access to a kitchen to cook for themselves, which could force them to rely on takeout and restaurants.

But studies show that Millennials in the 15-24 age range have spent an average of just 11 to 17 minutes per day in cooking and cleaning up activities in the past 10 years. So it’s not just a matter of lack of space to cook for themselves – it’s also a lack of skill and know-how.

The Impending Fallout of Using Loan Money for Leisure

The other apparent lack of skill in LendEDU’s findings is the ability for some students to make wise decisions on how to use borrowed money. And for every misaligned action, debt-laden students are soon discovering there is an equal reaction – but it’s not always the one they were expecting.

LendEDU conducted a prior study that indicated almost half of student loan borrows incorrectly guessed the government would forgive their balance for federal loans. Which means that some of the spring breakers who are footing the bill with loan money are doing so fully expecting to be free and clear of their expenditures.

In another study, parents who co-sign the student loan for their child (about 90% of student loans are co-signed) mentioned late or non-payments have jeopardized their chances for retirement. (But in all fairness, about a third of those parents didn’t realize the risk of fulfilling co-signer duties.)

Not to mention that, on top of what students are spending on beach trips, alcohol, drugs, and other unnecessary expenses, they’ll be paying hefty interest charges to boot.

Had they known they would be responsible for paying back every cent (and then some), students may have spent their loan money differently.

The Other Side to the Student Loan Story

The fact that spending loans on plane tickets and hotel stays isn’t illegal means that, technically, students can use the money however they wish. But most experts will agree that spring break trips, drugs, and alcohol aren’t the best uses for those funds, especially when the times comes to repay your lenders.

Which is why it’s refreshing to know that the majority of students who borrow money for college are putting those funds to good use.

Students who take on student loans are more likely to study harder and keep their focus on their academics compared to students who aren’t accruing debt. A study from Indiana University showed that the college experience is largely impacted by the student’s amount of debt. And those students with skin in the game tend to be more responsible with their spending and their schoolwork.

College and its associated expenses (books, meal plans, room and board, supplies) are expensive enough without adding in bonus vacations and nights at the bar. Most students realize this and will need to put that money toward living expenses. After that, there might not be any left for anything else.

One Final Thought

According to the latest Life Delayed report,

  • 62% of respondents say loan payments strained their finances when combined with other bills,
  • 35% have trouble buying daily essentials, and
  • 52% are impacted regarding major purchases.

If student loans are the only option if they want to achieve college goals, there’s no reason why they shouldn’t accept a Stafford loan to get their foot in the classroom. They might be more likely to put forth a serious effort into their schoolwork, which could mean graduating early and saving a semester or two of tuition.

But students who continue to increase their debt load with a Grad Plus loan or private loan can find themselves buckling under the pressure of their debts, which could make it more difficult for them to repay the borrowed amount (plus interest).

It isn’t fair to blame every loan repayment issue on spring break vacations, especially since loan money is also funding other channels. However, the data from LendEDU does present an alarming case illustrating that many students are responsible for the weight of their own financial burden. Even if they don’t get a trip to Cancun out of the deal.

When students take control of their student loans, the financial benefits will pay off long after they walk across the graduation stage.

Need Help?

Do you need help figuring out how to pay for college? Our knowledgeable financial strategists offer complimentary consultations to families of college bound students. Click here to schedule now.

Jim Slowik

Jim Slowik strategizes for families of all incomes to leave no stone unturned to reduce college costs. Jim has worked for over 30 years in marketing and management with 20 of those years in financially related industries. As a parent of college students, Jim understands the challenges of navigating the college process. He holds a Bachelors of Marketing from North Central College.

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