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Investing Loan Money

Discussion in 'Financial Aid' started by Doc AdamK in 2006, Mar 25, 2002.

  1. Doc AdamK in 2006

    Doc AdamK in 2006 Now 2 year UB Med Doc
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    Does anyone take extra money from low APR loans and invest the money in something that will make you more money? If so, what?
    Is it safe?

    AK
     
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  3. mpp

    mpp SDN Moderator
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    When I was an undergrad, the state of Alaska subsidized all interest on Alaska Student Loans. For a couple years, I took out the highest amount allowable ($8,000 per year) even though I had enough money to pay my own school fees and worked to pay for other living expenses. I then invested $8,000 of my own money each year. I kept my investments in place during graduate school and then two and half years in the Peace Corps (as the interest was subsidized by the state for Peace Corps as well) -- for almost ten years I had use of this extra money for free.

    It might not have been the most ethical thing to do as I didn't need the loans to go to school. But it sure worked out well for me and the state was offering the service, no questions asked. I did risk losing money but it was tough to lose investing in the stock market during the 1990's.

    I still have yet to repay those loans totally. I'm in loan repayment but with the decent interest rate offered and now that interest on student loans is deductible, I continue to carry the loans along paying the minimum rate. Once I start medical school this fall, they will once again go back into deferred/subsidized status. I think it makes more sense to do this then to payoff the loans with money I have now and then need to borrow for medical school.

    Another lucky thing was that as I pulled out of the market in early 2000 (thank the good Lord for Bob Brinker) I moved into I-bonds (and some corporate bonds, money market, GNMA's, and CD's). The gains on I-bonds are tax-free if used for educational expenses (I didn't know this when I went in and this was before I decided to go to medical school).

    Anyway, long story, but yes, I have used low rate loan money for personal investment (sort of). It was risky but that is because I made risky investments (I could have easily invested in CD's instead of the stock market but would have earned a lower but guaranteed return).
     
  4. Winged Scapula

    Winged Scapula Cougariffic!
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    Moving to Financial Aid forum...
     
  5. gator2886

    gator2886 Member
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    Investing loan money intended for educational purposes is illegal. The money is to be used for tution, books and necessary living expenses while in school. So if you invest in something more than a money market, ie stocks or bonds, you are being risky.
     
  6. smackdaddy

    smackdaddy Senior Member
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    its called fraud. but if you choose to, its been done before.
     
  7. mpp

    mpp SDN Moderator
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    What I have done (and am still doing) is not illegal or fraud. I'm not investing the loan money. I am taking loan money and using to pay for school and other expenses. I am then investing my own money that I could have used to spend on school and living expenses. It is not fraudelent in the least since the money the state is handing over is going for their approved purposes.

    It is unethical in the sense that I am short-changing the state (or the Feds) by accepting the low-interest loans they are offering when I don't really NEED them. In the case of the state loans it was incredibly beneficial since the interest was entirely subsidized by the state. I could pay off every dime of those loans tomorrow if I want to but I am in medical school and so the state of Alaska is paying the interest so I'll just let them ride and let my investments grow. Again, a bit unethical but not illegal.
     

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