Summary: Graduate student loans can be used for any expense within your school’s cost of attendance (COA), including tuition, housing, food, books, transportation, and dependent care. Loans cannot be used for non-education expenses like vacations, car purchases, entertainment, or paying off other debt. Every dollar you borrow accrues interest, so spending wisely on approved expenses is both a requirement and a smart financial strategy.
Graduate school is expensive, and most students rely on federal or private loans to cover a large portion of the cost. But once your school deducts tuition and fees from your loan disbursement and sends you the remaining balance, it could be tempting to treat those leftover funds like free money.
It’s not. Every dollar you borrow for graduate school accrues interest and must be repaid, so knowing exactly what qualifies as an approved expense can save you from unnecessary debt and potential penalties.
Here’s a breakdown of what graduate student loans can and can’t be used for, how the cost of attendance works, and what happens if you misuse your funds.
How does cost of attendance determine what you can spend?
The key concept behind student loan spending is your school’s cost of attendance (COA). Defined by Section 472 of the Higher Education Act, the COA is the total estimated cost of attending your graduate program for one academic year. It sets the ceiling on how much financial aid, including loans, you can receive.
Your school’s financial aid office calculates the COA by adding up standard expense categories like tuition, housing, food, books, and personal expenses.
The total varies by school, program, and whether you live on or off campus. Any expense that falls within these COA categories is generally considered an approved use of your student loan funds.
It’s important to note that COA is an estimate, not a spending cap on individual categories. Your school determines the reasonable amounts for each category, and you’re expected to use your loan funds across those approved expense types, not treat any leftover disbursement as discretionary income.
What can graduate student loans be used for?
Federal and private graduate student loans can be used for any expense that falls within your school’s official cost of attendance. Here’s a breakdown of the major approved categories.
Tuition and Fees
This is typically the largest expense in your COA. Tuition covers your classes, while fees may include registration, technology, lab, library, and graduation fees. Your school will usually deduct tuition and fees directly from your loan disbursement before sending you any remaining funds.
Housing and Utilities
Whether you live on campus or off campus, student loans can cover your housing costs. This includes dorm expenses, rent for an apartment, utilities, and renters’ insurance.
If you live off campus, keep in mind that your housing costs could be limited to the average amount your school budgets for students with similar living arrangements.
Food and Meal Plans
Loan funds can pay for on-campus meal plans and groceries you purchase for home cooking. Meals are allowed as part of your food allowance, but extravagant dining or excessive spending beyond your COA budget could be considered misuse.
Books, Supplies, and Equipment
Required textbooks, course materials, notebooks, and other school supplies are approved expenses. You can also use loan funds for equipment needed for your coursework, such as a laptop, specialized software, or a camera for a photography course.
If your program requires specific tools or lab equipment, those costs may qualify as well.
Transportation
Getting to and from campus is a necessary expense, and student loans can help cover it. Approved transportation costs include gas, bus or train passes, highway tolls, parking permits, and routine vehicle maintenance.
However, you cannot use your student loan to buy a car or make car payments. Loan funds can only cover the cost of commuting.
Dependent Care
If you’re a parent attending graduate school, you can use loan funds to pay for childcare or dependent care while you’re in class, studying, or completing fieldwork. This could include a babysitter, daycare, nanny, or after-school program. Contact your school’s financial aid office to have dependent care costs added to your COA, as they typically won’t be included automatically.
Other Approved Expenses
Several other expense types may qualify depending on your program and situation. These include:
- Study abroad costs
- Professional licensing and certification exam fees (one per program)
- Disability-related services and assistive technology
- Cooperative education program expenses
- Essential household items (dishes, bedsheets, cleaning supplies)
- Loan origination fees
What expenses are allowed vs. prohibited?
The table below provides a quick reference for common expenses graduate students encounter and whether they’re generally approved or prohibited uses of student loan funds.
Expense |
Allowed? |
Notes |
Tuition and fees |
✅ Yes |
Deducted directly by your school |
On-campus housing/dorm |
✅ Yes |
Deducted directly by your school |
Off-campus rent and utilities |
✅ Yes |
Up to school’s COA allowance |
Meal plan |
✅ Yes |
Deducted directly by your school |
Groceries |
✅ Yes |
Part of food/board allowance |
Textbooks and course materials |
✅ Yes |
Print, digital, or rental |
Laptop or computer |
✅ Yes |
If needed for coursework |
Software for classes |
✅ Yes |
Required by your program |
Gas, bus pass, or train fare |
✅ Yes |
Commuting to/from school |
Childcare or dependent care |
✅ Yes |
Notify financial aid office |
Study abroad expenses |
✅ Yes |
Through an accredited program |
Professional licensing exams |
✅ Yes |
One per program |
Disability-related services |
✅ Yes |
Including assistive technology |
Gym memberships |
⚠️ Limited |
Could fall under personal allowance, not excessive fees |
Clothing and personal items |
⚠️ Limited |
Covered under personal allowance, not luxury spending |
Restaurants and takeout |
⚠️ Generally discouraged |
Food must fall within COA room and board allowance |
Buying or leasing a car |
❌ No |
Gas and maintenance are OK |
Vacations and travel |
❌ No |
Non-school trips not allowed |
Entertainment and streaming |
❌ No |
Concerts, streaming, sports events |
Paying off credit cards or other debt |
❌ No |
Including car loans and mortgages |
Real estate or down payments |
❌ No |
Cannot purchase property |
Fraternity or sorority dues |
❌ No |
Not part of school’s COA |
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When in doubt about whether a specific expense qualifies, contact your school’s financial aid office. They can tell you exactly what’s included in your COA and whether a particular cost is approved.
What happens if you misuse graduate student loan funds?
When you take out federal student loans, you sign a Master Promissory Note certifying, under penalty of perjury, that you’ll only use the funds for education-related expenses. While lenders don’t typically track your day-to-day spending, there are real consequences if misuse is discovered.
Intentional fraud involving federal student aid can carry severe penalties, including fines and imprisonment, though enforcement typically applies to cases involving deliberate misrepresentation rather than routine budgeting mistakes.
More commonly, if your school’s financial aid office discovers misuse, it could report you to the Department of Education and demand immediate repayment. For private student loans, your lender could place your loan in immediate default if it determines you’ve violated your loan agreement.
How to make the most of your graduate student loan funds
With graduate loan interest rates above 7%, stretching your loan dollars further could save you thousands over time. Here are some practical strategies.
Only borrow what you need. Just because you qualify for a certain loan amount doesn’t mean you need to take it all. Create a realistic budget before accepting your full loan offer.
Return leftover funds. If you receive more than you need after covering approved expenses, you can return the excess to your loan servicer. For federal loans, you can cancel unused disbursements within 120 days to avoid interest on that amount.
Exhaust free money first. Before borrowing, apply for scholarships, graduate assistantships, fellowships, and employer tuition assistance. Every dollar in free aid means one less dollar of debt.
Use a 529 plan. If you or a family member has a 529 college savings plan, those funds can be used tax-free for graduate school tuition and fees, books, supplies, equipment, and room and board (for students enrolled at least half-time).
Track your spending. Keep a simple record of how you use your loan funds. This protects you if there’s ever a question about misuse and helps you stick to your budget.
Do federal and private loans have different spending rules?
Both federal and private student loans are intended for education-related expenses, but there are some differences in how the rules work.
Federal loans follow the U.S. Department of Education’s guidelines, which tie approved spending to your school’s cost of attendance.
You certify under penalty of perjury that you’ll only use the funds for educational expenses. Your school acts as a gatekeeper by disbursing funds and deducting institutional charges first.
Private loans are governed by your loan agreement with the lender. Most private lenders follow similar guidelines and cap borrowing at your school’s certified cost of attendance minus other aid. However, each lender sets its own policies on what qualifies as an approved expense.
Most private lenders require school certification and limit borrowing to your COA, though enforcement mechanisms differ from federal loans. Always review your specific loan agreement and contact your lender with questions.
Key Takeaways
- Graduate student loans can cover any expense within your school’s cost of attendance (COA), including tuition, housing, food, books, transportation, and dependent care.
- Prohibited expenses include car purchases, vacations, entertainment, paying off other debt, and real estate.
- Your school’s COA sets the ceiling on total borrowing, not a per-category spending cap.
- Misusing federal loan funds can result in penalties ranging from repayment demands to fines and imprisonment for intentional fraud.
- Return unused loan funds within 120 days to avoid paying interest on money you don’t need.
- Explore 529 plans, scholarships, and assistantships before borrowing to reduce total debt.
Frequently Asked Questions
Yes. Graduate student loans can be used for off-campus rent, utilities, and renter’s insurance as long as the cost falls within your school’s housing allowance in the cost of attendance. Keep in mind that your school may limit the housing amount to what’s typical for students with similar living arrangements.
Yes. If you need a computer for your coursework, a laptop is considered an approved equipment expense. The same applies to required software, printers, and other technology needed for your program. However, using loan funds for non-essential electronics like a TV or gaming console is not allowed.
If you have funds left over after covering your approved educational expenses, you have two good options. You can return the unused funds to your loan servicer to reduce your balance and save on interest. For federal loans, you can cancel all or part of your loan within 120 days of disbursement. Alternatively, you can use the remaining funds for other approved expenses like books, transportation, or groceries.
Yes. Federal student loans can cover childcare and dependent care expenses while you attend class, study, or complete required fieldwork. You’ll need to notify your school’s financial aid office so they can include dependent care in your cost of attendance, as it’s usually not included automatically.
Yes, as long as the study abroad program is accredited and approved by your school. Federal student loans can cover tuition, housing, and living expenses for eligible study abroad programs. Check with your financial aid office before enrolling to confirm your program qualifies and to understand how your loan disbursement schedule may be affected.
