It’s not explicitly illegal to use student loans to pay off debt from credit cards, but it could be considered a violation of your loan agreement. You’re supposed to use student loans only for your education and related expenses such as room and board, books, and transportation. Chapter 2 of the Federal Student Aid Handbook has the full list.
There’s one major situation where using student loans to pay off credit cards is acceptable – if you have used your credit card to purchase goods or services related to your education. For example, you might have charged your textbooks or bought a bus pass or even paid for room and board. In that case, using the money from your student loans to pay off those expenses on your credit card is essentially the same as just using the loan to pay for them in the first place. The same goes for using your student loan to pay off a non-student loan that you used for school-related expenses.
But even if you do use a student loan to pay off debts that aren’t related to school, it’s relatively unlikely anything bad will happen, aside from you possibly running out of money for school. Student loan issuers don’t track your spending; they simply lend you money for school and expect it to be paid back per the terms of the agreement. Using student loans fraudulently – e.g. taking loans out but not actually going to school – is illegal. Using some of your funds for non-educational expenses is at worst a violation of your loan agreement. And if your loan issuer finds out, they could impose whatever consequences the agreement specifies for a breach. But they have no way of knowing what you spent the money on unless someone calls them up and tells them.
That said, the wisest thing to do is to not use student loans for any expenses that aren’t related to your education. If you do pay off educational expenses that you first charged to a credit card or bought with another loan, make sure all those purchases are documented. Keep your credit card statements and purchase receipts. That way, in the unlikely event that your loan issuer ever questions you, you can prove that the expenses were related to your education.
Finally, if you need to borrow money to pay off debt unrelated to your education, consider a balance transfer credit card or a debt consolidation loan instead of tapping into your student loan.
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