Overpayment Refund: What to Do with Too Much Financial Aid

Welcome to the exciting (and sometimes confusing) world of college finances! As you embark on this journey, one term you might come across is “overpayment refund.” Let’s dive into what that means, why you might get one, and what you can do with it.

What is an Overpayment Refund?

An overpayment refund happens when the total amount of financial aid you receive (scholarships, grants, loans, etc.) exceeds your college’s billed expenses for the semester. When this occurs, the school sends the excess money back to you. It’s like getting a bonus, but with a few important strings attached.

Understanding Your Estimated Cost of Attendance

Before we get into the nitty-gritty of overpayment refunds, it’s crucial to understand the concept of your financial aid COA (estimated cost of attendance), sometimes called “student budget”. This estimated cost covers not only billed expenses like tuition, fees, room, and board but also non-billed living expenses such as:

Off-campus housing
Food (not included in a school meal plan)
Books and supplies
Transportation
Health insurance
Miscellaneous personal expenses

Financial aid packages, including scholarships (like those found through Going Merry), grants, endowments, and loans, are designed to help cover these expenses.

How Do Overpayment Refunds Work?

Scholarships, grants, and loans usually disburse directly to your college to cover billed expenses. If the financial aid exceeds these costs, a refund is generated. This refund can be sent to the student or, in the case of Federal Parent PLUS Loans, sometimes to the parent, depending on the school’s policies.

What Can You Do with Overpayment Refunds?

Alright, you’ve got this extra money – now what? Here are some options:

Cover Your Living Expenses: Use the refund for rent, groceries, transportation, and other daily needs. Remember, these funds are intended to help with your total cost of attendance.
Create an Emergency Fund: It’s wise to set aside some money for unexpected expenses, like car repairs, an unexpected rent hike, or necessary computer replacement. College life can be unpredictable, so having a financial cushion is a smart move.
Save for Future Semesters: Holding onto the funds for expenses between semesters is a good idea. Keep in mind, you can’t receive loan funding when you’re not enrolled, so having some money saved up can be a lifesaver.
Return Excess Funds to Lenders: If you find that you borrowed more than you need, you can return the excess funds to your lender. Returning Federal Loan funds within 120 days of disbursement (as explained here) means you won’t be charged any loan origination fees or interest on that amount. For private loans¹, check the terms and conditions, as they can vary.

Be Mindful of Loan Interest

While it might be tempting to hold onto extra loan money for a “rainy day,” remember that loans come with interest. Holding onto these funds can become costly in the long run. It’s crucial to only keep what you need and consider returning any unnecessary funds to avoid accruing more debt than necessary.

Wrapping It Up

Navigating college finances can be tricky, but understanding overpayment refunds and how to manage them can make your journey smoother. Whether you use the extra funds for living expenses, save for emergencies, or return them to minimize debt, being informed and proactive will set you up for financial success in college and beyond.

Good luck, and here’s to a fantastic start to your college adventure!

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

_¹ Before applying for private student loans, it’s best to maximize your other sources of financial aid first. It’s recommended to use a 3-step approach to assembling the funds you need: 1) Look for funds you don’t have to pay back, like scholarships, grants, and work-study opportunities. 2) Next, fill out a FAFSA(R) form to apply for federal student loans. Federal Direct subsidized and unsubsidized loans, excluding PLUS Loan for Parents and PLUS Loan for Graduate and Professional Students which require a credit check and a credit worthy endorser if the parent or graduate or professional student has adverse credit, do not require a credit check or cosigner, and offer various protections if you’re struggling with your payments. 3) Finally, consider a private student loan to cover any difference between your total cost of attendance and the amount not covered in steps 1 and 2. For more information, visit the Department of Education website at https://studentaid.gov/.

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Daniel Bod

Writer at Going Merry

Daniel Bod is a seasoned higher education professional with two decades of expertise in financial aid. He began his career at Hofstra University in 2004, after completing his Bachelor's degree from Stony Brook University in 2000, where he provided comprehensive financial aid support to families from diverse backgrounds. In 2007, he transitioned to LIU Post and advanced to Senior Assistant Director of Enrollment Services, dedicating over ten years to assisting students and families in various capacities. During his tenure at LIU Post, Daniel also earned a Master's degree in Childhood Education. Transitioning to St. George's University in 2019, he spent over four years focusing on the financial needs of medical students. Daniel excels in advising on loan options and empowering students and families to make informed decisions about educational finances.

My Financial Aid Overpaid for College: What Should I Do With My Refund?