Would it be possible for an HPSP student to take out direct unsubsidized/grad plus loans in order to collect interest?

[Fried Plantaris]

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I'm not entirely sure how the loans work if you have an existing military scholarship, but say you can take out the full $40,000 amount a year. I do know they give you a 120 day grace period to return the loan with no interest and no fees. Then let's say you throw that $40,000 into a high interest savings account ~1.7-2.2% (avg. 2%). After one year you are up $800, assuming you return the loan in time to not get hit with interest or fees. No risk, since the bank is FDIC insured, and these are not stocks. Would this work under the existing structure of graduate student loans?

 

[orbitsurgMD]

Origination fees?

 

[Fried Plantaris]

Not that I'm aware of. I found this information off a website:

But if you make payments within 120 days of the date the loan is disbursed to your school, your entire payment goes solely to the principal balance of your loan. The payment is treated as a loan cancellation payment, and it will be made effective the same date as when the loan was disbursed. Any origination fee you were assessed will be adjusted based on your new, reduced principal balance, and less interest will accrue based on a smaller principal balance.

I'm 90% sure I had no original disbursement fee for loan that I partially returned during my masters program. The thing most likely to throw a wrench in this whole idea is if I am even able to take out $40,000 once FAFSA sees I am on military scholarship. Need to do more digging on that.

 

[MedDoc305]

Not that I'm aware of. I found this information off a website:



I'm 90% sure I had no original disbursement fee for loan that I partially returned during my masters program. The thing most likely to throw a wrench in this whole idea is if I am even able to take out $40,000 once FAFSA sees I am on military scholarship. Need to do more digging on that.

Yeah I believe the school will not allow you to take out more than COA, which in your case, after tuition, would be what the school approves for the cost of living.

Edit: this is pretty much heresay, I've never done it nor know anyone who has. Its just something ive read before in other forums.

 

[pgg]

I'm not entirely sure how the loans work if you have an existing military scholarship, but say you can take out the full $40,000 amount a year. I do know they give you a 120 day grace period to return the loan with no interest and no fees. Then let's say you throw that $40,000 into a high interest savings account ~1.7-2.2% (avg. 2%). After one year you are up $800, assuming you return the loan in time to not get hit with interest or fees. No risk, since the bank is FDIC insured, and these are not stocks. Would this work under the existing structure of graduate student loans?

What interest rate do you think student loan funds are lent at?

(What you're proposing isn't going to work.)

 

[Fried Plantaris]

What interest rate do you think student loan funds are lent at?

(What you're proposing isn't going to work.)

I'm suggesting returning the loan before you get hit with interest or fees. There's a 120 day grace period. You'd just have to take it out and return it once per semester

 

[ClipArtBananas]

A friend tried this. Loan servicer started asking questions after second time he did it. He ended up telling the truth and was ultimately banned from taking out federal loans again or being listed as a cosigner on federal loans...

 

[pgg]

I'm suggesting returning the loan before you get hit with interest or fees. There's a 120 day grace period. You'd just have to take it out and return it once per semester

So assuming perfect efficiency, every 120 days, three times per year, you're going to borrow $40,000. Pay a 1% or so origination fee, minus $400 each time. Assuming it's even possible to do that three times per year. Maybe your school is on the three semester/year system.

Then you'll put that $39,600 in a "high interest" savings account at 2%, earning perhaps $800 for the year.

I can think of approximately 400 more entertaining ways to burn $400/year, and at least 380 of them involve less paperwork.

This is a terrible idea. 🙂

 

[orbitsurgMD]

I'm suggesting returning the loan before you get hit with interest or fees. There's a 120 day grace period. You'd just have to take it out and return it once per semester

A friend tried this. Loan servicer started asking questions after second time he did it. He ended up telling the truth and was ultimately banned from taking out federal loans again or being listed as a cosigner on federal loans...

Was there more to that story?
If applying for a loan and returning the loan within the allowed period is lawful, how can they impose a penalty--the kind that comes usually from being convicted after breaking the law--without any form of due process? Even if the purpose was to secure an interest-free loan of funds and to make interest income over the short term, the activity was not necessarily unlawful, unless there is some requirement that you attest that you have no other form of educational funding when you had secured other funding.

 

[Fried Plantaris]

@pgg There are no origination fees if you return the money on time! No $400 deduction* (at least not for direct subsidized loan)

I have combed over the promissory note for the Direct Unsubsidized loan and it will work. I still need to look into the details of Grad Plus Loan. I will update when I know more

@ClipArtBananas @orbitsurgMD If nothing else it can be considered living expense money . Where in writing is it wrong to keep an emergency savings fund?

 

[pgg]

OK

Good luck, I guess.

Here's an idea - you could "hire" an employee, a neighbor's kid maybe, or a hippie who just needs some extra weed money, someone with no income, to do "work" and pay them $10K year. Then they can file a tax return for that small amount, but they wouldn't pay any taxes on it. They'd even get a refundable tax credits as a "working poor" person. Then they can "give" the $10K back to you. Which is also not a taxable event! Maybe you guys can split the refundable tax credit.

Then - here's where the real riches come in - you can apply to the government for some of that sweet, sweet COVID-19 relief. Maybe get a zero interest payroll loan because social distancing put your "business" on the ropes! It might even be forgiven!

 

[orbitsurgMD]

OK

Good luck, I guess.

Here's an idea - . . . .

Don't worry, we'll mail you a cake with a file in it. Promise.

 

[usma05]

You seriously want to pull a 40k loan to make $800? Juice ain't worth the squeeze. Maybe donate some plasma, sign up for a paid research study, or hit the craps table? Also not advisable "investment" options, but your return of $800 for putting that kind of credit on your record is ill advised.

 

[ClipArtBananas]

@pgg There are no origination fees if you return the money on time! No $400 deduction* (at least not for direct subsidized loan)

I have combed over the promissory note for the Direct Unsubsidized loan and it will work. I still need to look into the details of Grad Plus Loan. I will update when I know more

@ClipArtBananas @orbitsurgMD If nothing else it can be considered living expense money . Where in writing is it wrong to keep an emergency savings fund?

In writing it says the loan is to be used for expenses related to cost of living and education...it's a terrible idea.. driving for Uber or delivering pizzas or tending bar or stripping all sound like better (read as safer financially and legally) short term solutions.... Even in covid era where those activities are banned it's still a better option

 

[ClipArtBananas]

Was there more to that story?
If applying for a loan and returning the loan within the allowed period is lawful, how can they impose a penalty--the kind that comes usually from being convicted after breaking the law--without any form of due process? Even if the purpose was to secure an interest-free loan of funds and to make interest income over the short term, the activity was not necessarily unlawful, unless there is some requirement that you attest that you have no other form of educational funding when you had secured other funding.

Could be more to story that I'm unaware of, that's just the account of it that I received. Seems reasonable to me