Can I use student loan funds to consolidate credit card debt at a lower rate?

Joe asks: Since I am a full-time student, I can use my student loans for anything. Could I buy up my credit card debt (consolidating it at a lower interest rate?) Is this a good idea? Is it legal?

It sounds like you’re receiving direct cash student loan disbursements and, as you say, you can spend that money on anything. Most student lenders make provisions for borrowers so that loans can be used to pay not only tuition and fees, but also living expenses while you are in school (housing, food, transportation, etc.)

Since it’s already “okay” to use student loan funds for these personal expenses, it’s not a huge stretch to pay down credit card debt with the funds. As for the legality, the only way to be sure is to dig out your student loan promissory note (that thing you signed when you got the loan, if you kept it), to see if it puts any requirements on how the funds are used. It seems to me that it would be almost impossible for lenders to enforce this, but you should at least know if what you want to do is or isn’t explicitly “breaking the rules”.

If you were to do this, keep in mind that you are not eliminating the debt, just rolling it into your student loans. It could be very easy to just rack up new credit card debt and have twice the debt you once did. Make a plan to stay debt free.

Good Luck!

David @MoneyUnder30