What Happens If You Misuse Your Student Loans?

The availability of student loans has made it possible for millions of students around the world to pursue the course of their preferences from their dream colleges. The fund you get in the form of a student loan generally covers your educational expenses, including the tuition fees, books and supplies, and basic living cost. But what happens if you spend the money elsewhere?

Several college students often decide to spend the funds from student loans on non-educational purposes, such as going on vacations or investing in cryptocurrency. Reportedly, 20 per cent of students use their financial aid money to invest in cryptocurrencies like Bitcoin. Are students allowed to do so? Aren’t there any consequences of misusing the student loan money?

Well, financial aid fraud cases and illegal borrowing can lead to legal prosecution and even imprisonment. However, that happens rarely. And if you can prove that someone has stolen your identity to get the financial aid, you can have those charges for fraudulent loans dropped. 

“In the case of misusing student loan funds for any non-education purpose, there is apparently no legal enforcement. In fact, borrowers can use the loan money in whatever way suits them without the fear of being prosecuted”, says Emilia Jones, a law expert associated with the academic brand MyAssignmenthelp. But the question is – if it is essentially legal, should not everyone use their student loan money in other things? 

1. Financial implications:

If you decide to spend your financial aid for non-educational purposes, and someone reports it to the officials at the Department of Education, they can withdraw the sanctioned loan money within minutes. In such a situation, you will have to pay the outstanding bill of all the expenses from your pocket, which can be a difficult thing to handle on your own.

Moreover, if you choose to buy a car or other expensive items, you will have to think about the interest rates as well. Usually, car loans are less expensive than student loans. And even if you can find a student loan with a lower interest rate, there are several disadvantages. No matter how bad your financial condition gets, you will still have to clear the debts.

2. Ethical concern:

Student loans are meant for students to pay their tuition fees and other expenses such as the purchase of books and supplies. Moreover, the loan money can also help students pay their travelling and accommodation expenses. For international students, covering those expenses becomes a priority. If a student ignores those expenses and spends the fund from the loan improperly, it can put the student in a lot of trouble.

Furthermore, the loans are given out on a first-come-first-serve basis. If you have enough money to spend on other things besides educational expenses, you should leave the financial aid for students who need it more than you. It may not affect your lifestyle much. But the financial aid can help a student fulfil his dream.

3. The less the debt, the better:

Once you complete your education and move to professional life, you would like to pay off the students’ loan faster to clear the amount of debt. When you spend the loan money on other things besides education and essential needs, you are actually increasing the amount of debt. And since it is going under the student loan, you will have to clear the debt. You cannot get rid of such debt even if you declare bankruptcy.

It is better if you plan your expenses before you start using your student loan to fulfil your desires. You do need to consider your educational expenses, living expenses and other essentials. It is better to start managing your expenses smartly from the college days. Otherwise, it will be hard for you to pay for those purchases that never add any value to your life.


Even though there is next to no legal risk of spending the student loan money for non-educational purposes, you still have a lot of other things to consider. Thus, it is better to use your financial aid for things which you are supposed to spend on. That not only keeps your conscience clear but also saves you from a humongous debt in the future.

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