When your school sends you a refund

Where a refund comes from

Your school first applies your aid to what you owe it, such as tuition, fees and on-campus housing and meals. When the aid posted to your account is larger than those charges, the leftover is called a credit balance. The school then sends that balance to you, usually by direct deposit or check, and calls it a refund.

The timing depends on when aid is disbursed, which is often near the start of a term or a set number of days into it. Your student account portal shows charges, aid and the date any refund was issued. If something looks wrong, the bursar's or student accounts office can walk you through each line.

Much of a refund may be borrowed

A refund arrives without a label saying where it came from. If your aid included a loan, part or all of the refund may be loan money that you will repay with interest. Check which items on your account are grants or scholarships and which are loans before you treat the refund as spending money.

If you borrowed more than you need, ask the financial aid office how to return some of it or reduce the loan. Sending back unneeded loan money soon after it arrives cuts what you owe later. The office can tell you the steps and any deadline that applies.

A plan for the money you keep

Hold back what the term still requires, including books, rent if you live off campus, transportation and the weekly amount from your spending plan. Spread the money across the weeks of the term rather than spending it in the first month. Moving the share meant for later weeks into savings helps it last.

Keep in mind that withdrawing from classes can change your aid. If you leave or drop below a certain enrollment level, the school may have to return some federal aid, and you could then owe the school a balance. Talk to the financial aid office before you drop a course.

Refunds and taxes

Grant and scholarship money spent on tuition and required course materials is generally not taxed. The same kind of money spent on housing, meals or travel can count as taxable income. Your school sends Form 1098-T early in the year to report payments and aid, and the IRS website explains how to use it.

Keep a note of how you spent each refund, at least in broad categories. That record makes filing a tax return easier and answers questions that come up later. IRS Free File or a volunteer tax help site can assist with the return itself.