Wyatt said
I could find plenty of similar question on this site alone, but none answered my question quite clear enough.I'm in my 3rd in college but it's the first year that I am benefiting from federal financial aid.I received some Pell Grant and a little more subsidized loan which paid off my tuition, textbook and other expenses directly related to education. A considerable sum of subsidized money is sitting in my checking account.I live with my parents about 35 miles away from the school and work 30 hours a week at a place less than a mile away from home.I am fond of moving out closer to the school so I would not need a car, but I can't reasonably hope to find a job there that pays what I'm paid for doing little more than sitting there doing my homework.I drive 45 minutes to the nearest train station and take a 40-minute train ride to commute.My 89' Accord is about to die on me.I am going to take an auto loan from a bank to buy a slightly used car from private party and pay down about $4,000, little more than what my account would have without the federal loan.I plan to use the leftover from my future financial aids to pay down the auto loan because the federal loan has much more favorable terms than the bank loan.Since I live with my parents mostly on their food, I can contain the monthly car payment, insurance, gas, and all the other living expenses only with what I earn, but barely.So I do have an option of not spending the federal loan on the auto loan if it turns out that I'll be penalized for buying a car with federal loan.I heard that car is among the things the government expressly prohibited the students from buying with borrowed money.But I also hear that the government doesn't care what you do with the money left over. And even if it does, it has no way to find out.But they will find out that I spent more money than I made and that I have an auto loan from a bank when I apply for next year's financial aid with this year's tax return.Also, I began working on record for the first time this Spring. So my income was zero when I applied for this financial aid. Would all of these make the FAFSA decide that I am not in need of their aid?

motorfull said
Part 668 of Title 34 of the Code of Federal Regulations (CFR) provides the statutes that govern the federal aid system. The relevant part of 668.32 says:A student is eligible to receive title IV, HEA program assistance if the student--(h) Files a Statement of Educational Purpose in accordance with the instructions of the Secretary;When you apply for financial aid, you will be asked to sign that Statement of Educational Purpose, and it will say something like this: "Statement of Educational Purpose and CertificationI hereby affirm that any funds received under Federal Work Study, Federal Perkins Loan, or Federal Direct Loan Program will be used solely for expenses related to attendance or continued attendance at _______ University. I further understand that I am responsible for repayment of a pro-rated amount of any portion of payments made which cannot reasonably be attributed to meeting educational expenses related to the attendance at this institution. The amount of such repayment is to be determined on the basis of criteria set forth by the Secretary of Education.By financial aid law, you are permitted to use federal student aid to cover the "Cost of Attendance" at your school. Cost of attendance specifically includes: Tuition and feesAn allowance for books, supplies. transportation and miscellaneous personal expensesAn allowance for room and boardFor students with dependents, an allowance for costs expected to be incurred for dependent care.Obviously, the most relevant allowance is for transportation, but I can tell you that the transportation allowance is an allowance for gas and minor maintenance of a vehicle, and not for the purchase of a vehicle. Most schools estimate the transportation allowance as something in the neighborhood of $800-1200.So here's the deal....Under a strict interpretation of the federal aid rules, you can not use student aid to purchase a vehicle. However, there are few caveats:The government does not require that you provide an accounting of your expenses. They're going to take your word for it (and you did sign an affidavit to this effect) that you will use the money only for educational purpose.Remember - your financial aid is based on your school's estimate of what it should cost you to attend each year. Obviously, that amount differs from student to student, so the school uses a profile for an "average" student - your actual expenses may be less than the school allows. Still, this makes me wonder how your school could have so badly over-estimated the amount of money you would need to pay all of your school expenses this year.Finally, be careful in analyzing the financial case for using a student loan to buy a car. The car loan may have a higher interest rate, but the car loan isn't a 10-year loan, like those Staffords that you're thinking about using. The longer the term of the loan, the more interest accrues on the loan, and the more you will eventually have to repay. An interest rate difference of a few points could easily be wiped out by a longer loan term.Never use a loan to buy an item that has a useful life shorter than the repayment term of the loan. You wouldn't want to be making monthly payments on a TV that you threw away years ago, and you don't want to be making payments on a car that's sitting in someone else's driveway, or rusting in a junkyard. It's highly unlikely that you'll be driving that "slightly used car" in 10 years, when you're done paying off the loans that you used to buy it.Can you get away with it? Almost certainly. You're worrying too much if you think the Department of Education analyzes your spending when they use your annual FAFSA to calculate each year's EFC score (they don't).Do you really have THAT much money left over? If you do, your school is wildly inaccurate in their Cost of Attendance calculation and analysis.Should you buy a car with that money? From a financial perspective, absolutely not. From an "I can't get to school if I don't have a reliable car and this is my only option" perspective? You'll have to decide that for yourself. From an "Is this pretty boldly stretching the rules of the aid system?" perspective. Yes it is.From a "Can I get away with it?" perspective - yes, you can.Good luck.

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Brandon said
I am pretty sure the loan money has to be used on educational purposes. Check out the website www.ed.gov and click on financial aid. It has some information about the guidelines.