Investing Federal $$

[dswonger]

I may get a financial aid package that is more than I really need (at least this year). My taxes and income show a really low # and I'm thinking that financial aid for a family like mine (wife + 3 kids) may turn out to be like increasing my standard of living (we have yet to see so this is hypothetical).

What I was wondering was... is there anyone out there who received/taken more in scholarship, stafford loans, etc. at a zero interest or nominal interest rate that has taken that $$ and invested it (i'm thinking conservatively)? It may only happen for me for 1 year, but if I get like an additional 20K @ 0% - 3%, I can turn that $$ in the payoff period into a nice little chunk towards my debt later .

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[delicatefade]

Absolutely. I think you've hit the nail on the head by thinking "conservative" investing. You don't want to risk something with even moderate volatility because you aren't really in it for the long haul. You should be able to invest in something low risk that will at least offset the interest rate you are paying on your unsubsidized loans. And if you make some money above that, you will have more $$$ to help pay them off later. Good luck.

 

[dsblaha]

I spoke to a financial advisor about playing the interest rate game and he advised against it. If you are really astute you can do it but I am choosing not to. I guess I am just too conservative, I would rather borrow less now and use the money I make later to pay off what I do borrow. It has more to do with your personal philosophy than anything.

 

[delicatefade]

What game??? You don't have to put the money in stocks or mutual funds. Stick it in a money market account. Put it in a one year CD with a fixed interest rate. Put it in government bonds. All of those options allow you to liquidate funds easily and guarantee a positive return on your investment. Granted, it won't be a LARGE positive return but that's the price you pay for very low risk.

 

[Mutterkuchen]

First of all this is illegal. Will you get caught? Probably not, but the terms of your federal loans explicitly say that they funds must be used for the costs of education and other related costs such as rent and food.

I doubt that you will get much more than you need for a family of 5. Most medical schools don't offer an increae in the "cost of attendance" just because you have a wife and kids, and those that do don't give you very much.

If your situation/school is an exception, it is definite misuse of federal funds and highly unethical.

 

[Law2Doc]

As long as you use the federal loans for what they are earmarked, I think you can legally do whatever you want with your own $. But isn't 3% on $5000 just $150? When you consider that you might have cash flow issues for a year without access to the $5000, it doesn't really seem worth it.

Edit -- I guess I'm replying here to a post the poster removed...

 

[dynx]

I may get a financial aid package that is more than I really need (at least this year). My taxes and income show a really low # and I'm thinking that financial aid for a family like mine (wife + 3 kids) may turn out to be like increasing my standard of living (we have yet to see so this is hypothetical).

What I was wondering was... is there anyone out there who received/taken more in scholarship, stafford loans, etc. at a zero interest or nominal interest rate that has taken that $$ and invested it (i'm thinking conservatively)? It may only happen for me for 1 year, but if I get like an additional 20K @ 0% - 3%, I can turn that $$ in the payoff period into a nice little chunk towards my debt later .

Here's the problem, most school financial aid offices max out your subsidized loans before going into loans that accumulate interest. So any loan money you turned down would be loan money accumulating 3% interest. That means you MUST earn 3% on the money in order to break even. Chances of you breaking even are slim, if you do real well you might manage to benefit enough to buy a book. Spend the time mowing lawns instead of finding and invesmtment and thinking about this...you'll earn more.

 

[group_theory]

In the long term, it would be wiser to take whatever extra money that you have left (however you define "extra"), and pay down your unsubsidized portion of any loans (highest interest bearing first)

First - Most money markets and CDs have too low a yield to make up the difference in the interest that is accumulating. Also, for competitivate return rates, you need to invest large sums - $10k or more. I doubt you will have that much "extra" cash around. Also remember that the interest (on the loan) gets compounded to your principle amount when you graduate (so when you repay, you'll be paying off the interest of the interest in addition to the original amount)

Second - think TAXES. You not only have to break even, but you have to make enough to cover any federal, state (and perhaps municipal) taxes. The tax-free bonds and funds have low yield compare to your average fund.

Third - whatever profit you manage to make (based on money left over from student loans), what are the charges of having an investment account along with the cost of buying and selling?


A wiser solution to any additional money that you may have is to pay off any high interest loans that you have. If you have a credit card charging 15% interest or more - pay that off. You're losing more money with the 15% interest than you are from not paying down your student loans (cap at 8% MAX). Of course, once you pay it down, don't use the card.

 

[thackl]

The investement will also show up next yr when you apply for FA and potentially reduce your aid. Sooooo, you would have to gift it to a family member (no gift tax up to $10k) and have them invest it. I know people who have done this. I just pay off debts and waste the extra on fun stuff (save a little).

 

[dynx]

A wiser solution to any additional money that you may have is to pay off any high interest loans that you have. If you have a credit card charging 15% interest or more - pay that off. You're losing more money with the 15% interest than you are from not paying down your student loans (cap at 8% MAX). Of course, once you pay it down, don't use the card.

THIS is great advice if you do have credit card debt. I know too many people with 2000 in a money market account and 4000 on the credit card, makes me wonder how they got into medical school.

 

[dswonger]

First of all this is illegal. Will you get caught? Probably not, but the terms of your federal loans explicitly say that they funds must be used for the costs of education and other related costs such as rent and food.

I doubt that you will get much more than you need for a family of 5. Most medical schools don't offer an increae in the "cost of attendance" just because you have a wife and kids, and those that do don't give you very much.

If your situation/school is an exception, it is definite misuse of federal funds and highly unethical.

My wife didn't make anything last year. I mean like 16K. and b/c i own a business/sole proprietor (if you don't own a business, get one!) that "lost" money, our return looks really good. But, she is forcasting to make 40 this year. the scholar.,loan, etc. people will be basing off '04 #'s. So, we use federal stuff for school, housing, vehicle, kids!, insurance, etc. and the additional she makes wld go into investment. Our thoughts are around 20k would go in to investments of various ranges of conservatism. The BUT of the thing is, her "forcast" may not turn out, so we may well need the feds $. Again, that would probably last for only '05 and then FAFSA would catch up in '06. BTW. No credit card debt as of 2 years ago. Free at last! Free @ last! T.G.A.M., we're free @ last!! Ohh..no... student loans are a pilin'

 

[gary5]

If you invest money, then you'll have to report it the next time you apply for financial aid (they have you list investments). Then, the financial aid dept will decrease your aid by the amount of the investment because they always make you spend your money first. Then you have to hope that they don't ask where it came from. Since you signed something that said that money will be spend only on educational and living expenses, they can kick your butt for it.

 

[SticknRudder]

Depending on your housing market, I would invest it into Real Estate. Take the money, put a down payment on a new construction or rental property, transfer the loan into the name of your LLC and, Viola, nothing to report on your FAFSA.

At the end of 4 years, cash out on 20-60% ROI (at least in my market).

 

[LSUwannabe]

As another poster indicated...the key here as I see it is that the annual amt of a subsidized loan is capped.

For me it's $8500/yr. I'm sure it's higher elsewhere but how much?

Anything borrowed beyond that will be at 2.8% until post-grace period when it becomes 3.3%.


For what it's worth, I say save the money in case you need it. If you realize you don't (even if you realize this 2-3 yrs later) then pay off higher interest debts (car, CC, etc.) or just pay on the unsubsidized portion of your loan.

 

[tinkerbelle]

Anything borrowed beyond that will be at 2.8% until post-grace period when it becomes 3.3%.

I didn't know the interest rate changes. Are you sure about that? It's not specific to your med school?

 

[sparky5]

In general I agree with previous posters, it is hard to make >4.6% on your money these days and that is what private loans are running, but you can make >2.7% or pretty close with a savings account (see below), so borrow the whole stafford loan if you see a need for it, and don't worry about the small amount of interest you may incur.

I didn't know the interest rate changes. Are you sure about that? It's not specific to your med school?

They change here as well, and I think the fed. stafford changes as a whole. One good thing to do though is get a good savings account, you can earn somewhere around $200 a year just by using a savings account like ING Direct or another >2.5% APY account to hold your loan money until you need it since the school does a biannual reimbursement check. I wish someone had told me about this sooner.

I use ING direct now and it is great, easy secure online access, 6 transfers a month, transfers occur in 2-3 days, links directly to your checking account(s), FDIC insured.... I would highly recommend anyone who has >$100 sitting in a savings account to give it a try, nothing like an extra $30 a month!!

*If anyone wants to go this route, send me a pm, you earn a free $25 if I send you an email "inviting you to join" and then I earn $10.*

 

[Flobber]

All you guys think too much with all of your fancy numbers and terms. The smartest thing to do with excess loan money is to use it for internet gambling. Everybody knows that you can make TONS of money that way and its smart, too.

 

[DoctorWannaBe]

Are you guys saying that if you invest money, schools will count it against you, even if you have accumulated debt from loans also? Do they not consider your net worth? The reason I ask is because this year I kept my savings in mutual funds and used loan money to pay for school so I didn't use all my own money. The mutual funds lowered the amount of subsidized loans I got, and now it sounds like they are going to punish me again this year even though I really have no net worth due to my loans. BTW, the FAFSA says not to include financial aid in your assets, so doesn't that mean that you can subtract the amount of loans you have from your savings/investments?

As for no-risk investments, I also use ING Direct and it is great. They just raised the interest rate on savings accounts to 2.6%. They offer $25 if you sign up for an account and deposit $1, but you have to be referred by someone. I can send people referral links if sparky gives away all his.

 

[jawicobike]

Depending on your family situation and how you feel about government programs you may also want to take into account the effect that this extra account will have on any applications you create for government housing, medicare for your children, and foodstamps.