Investing your student loans

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
deadhipsters
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Investing your student loans

Postby deadhipsters » Thu Jun 02, 2011 8:37 pm

Say you went into law school with 25k or so in savings. What potential problems could arise if you took 5k (other than losing the money) out of your student loans each year and put that into an investment along side that 25k- assuming you were making a 7-12 percent return each year? Is this illegal or just unethical?

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fatduck
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Re: Investing your student loans

Postby fatduck » Thu Jun 02, 2011 8:38 pm

deadhipsters wrote:Say you went into law school with 25k or so in savings. What potential problems could arise if you took 5k (other than losing the money) out of your student loans each year and put that into an investment along side that 25k- assuming you were making a 7-12 percent return each year? Is this illegal or just unethical?

i'm gonna go with option 3: dumb

deadhipsters
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Re: Investing your student loans

Postby deadhipsters » Thu Jun 02, 2011 8:41 pm

Right. That was a completely useless comment. Thanks for contributing.

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glitter178
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Re: Investing your student loans

Postby glitter178 » Thu Jun 02, 2011 8:41 pm

fatduck wrote:
deadhipsters wrote:Say you went into law school with 25k or so in savings. What potential problems could arise if you took 5k (other than losing the money) out of your student loans each year and put that into an investment along side that 25k- assuming you were making a 7-12 percent return each year? Is this illegal or just unethical?

i'm gonna go with option 3: dumb


making a 7 percent return on something you are paying 7.9% interest on?

also: yes, i believe illegal. have to use loans for either tuition or school-related expenses.

duckmoney
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Re: Investing your student loans

Postby duckmoney » Thu Jun 02, 2011 8:42 pm

If, after fees and taxes, you can make greater than a 6.8 (or 7.9) percent return, then yes, this a great idea.

Good luck with that.

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vanwinkle
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Re: Investing your student loans

Postby vanwinkle » Thu Jun 02, 2011 8:42 pm

fatduck wrote:
deadhipsters wrote:Say you went into law school with 25k or so in savings. What potential problems could arise if you took 5k (other than losing the money) out of your student loans each year and put that into an investment along side that 25k- assuming you were making a 7-12 percent return each year? Is this illegal or just unethical?

i'm gonna go with option 3: dumb

deadhipsters
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Re: Investing your student loans

Postby deadhipsters » Thu Jun 02, 2011 8:43 pm

Currently I'm making 12 percent. Not expecting it to last forever. But you never know.

amorfati
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Re: Investing your student loans

Postby amorfati » Thu Jun 02, 2011 8:44 pm

fwiw, I think when you receive student loans you agree to only use them for necessary living expenses and school-related purposes. Of course, it's not strictly enforced - I used mine to pay off my credit card, which I then proceeded to use for living expenses over the course of the semester (as well as for several very non-necessary expenses).

So I'm going to say technically illegal (since you sign a contract), though probably not a big deal. Unethical, though.

duckmoney
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Re: Investing your student loans

Postby duckmoney » Thu Jun 02, 2011 8:45 pm

deadhipsters wrote:Currently I'm making 12 percent. Not expecting it to last forever. But you never know.


I wouldn't expect it to last forever. Sounds like a major risk to me. 12 percent is damn good.

Enjoy your gains while they last, but I wouldn't try to do it with borrowed money, especially not borrowed money with a freaking 7.9 percent interest rate. Your broker will probably lend you money cheaper than that.

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fatduck
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Re: Investing your student loans

Postby fatduck » Thu Jun 02, 2011 8:53 pm

i changed my mind

invest your entire student loan disbursement with this guy: viewtopic.php?f=5&t=156170

deadhipsters
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Re: Investing your student loans

Postby deadhipsters » Thu Jun 02, 2011 8:56 pm

fatduck wrote:i changed my mind

invest your entire student loan disbursement with this guy: viewtopic.php?f=5&t=156170


Bingo. That's my broker.

Bramwell
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Re: Investing your student loans

Postby Bramwell » Wed Jun 22, 2011 12:55 pm

For 1L, I was offered about 10k in subsidized loans with interest deferred until graduation. It was tempting to take it and put it away in some sort of low risk investment.

deadhipsters
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Re: Investing your student loans

Postby deadhipsters » Wed Jun 22, 2011 10:34 pm

Bramwell wrote:For 1L, I was offered about 10k in subsidized loans with interest deferred until graduation. It was tempting to take it and put it away in some sort of low risk investment.


That is kind of what I'm driving at. More specifically what if you were going to a T14 school and planned on using IBR to pay back loans while working in public service. Assuming you are geniunely interested in PI I don't see the problem.

shoeshine
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Re: Investing your student loans

Postby shoeshine » Wed Jun 22, 2011 10:37 pm

deadhipsters wrote:Currently I'm making 12 percent. Not expecting it to last forever. But you never know.

What kind of investing are you doing that earns you 12% on that small of an amount of money?

deadhipsters
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Re: Investing your student loans

Postby deadhipsters » Wed Jun 22, 2011 10:43 pm

Well it's 25k. Which isn't a large sum of money, but pretty much all my money. My high returns are mostly linked to the fact that I invested a large amount of money in Ford and J Crew when their prices were low. However, the majority is handeld by my parents broker though- and mostly in mutual funds.

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thesealocust
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Re: Investing your student loans

Postby thesealocust » Wed Jun 22, 2011 11:34 pm

You can, and you aren't allowed, and you won't get in trouble. It's also dumb, because if you had a way to guarantee a 7 to 12 percent annual return you should cash out as a hedge fund titan. That's the kind of rate Madoff was promising. Stock returns come with risk - you can earn that amount over long periods, usually while experiencing losses along the way. But if you feel like giving it a whirl with your loans, no harm will befall you for that choice, except you might lose the cash.

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wtrc
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Re: Investing your student loans

Postby wtrc » Sat Jun 25, 2011 10:34 pm

Regarding the "unethical" bit, if you are getting your loan from a private company or bank like BofA, they are the epitome of unethical.

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thesealocust
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Re: Investing your student loans

Postby thesealocust » Sat Jun 25, 2011 10:40 pm

weathercoins wrote:Regarding the "unethical" bit, if you are getting your loan from a private company or bank like BofA, they are the epitome of unethical.


Oh, what a scholar!

Renzo
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Re: Investing your student loans

Postby Renzo » Sat Jun 25, 2011 10:45 pm

thesealocust wrote: You can, and you aren't allowed, and you won't get in trouble. It's also dumb, because if you had a way to guarantee a 7 to 12 percent annual return you should cash out as a hedge fund titan. That's the kind of rate Madoff was promising. Stock returns come with risk - you can earn that amount over long periods, usually while experiencing losses along the way. But if you feel like giving it a whirl with your loans, no harm will befall you for that choice, except you might lose the cash.


This. Or, as succinctly summarized,


fatduck wrote:i'm gonna go with option 3: dumb

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EarlCat
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Re: Investing your student loans

Postby EarlCat » Sat Jun 25, 2011 11:10 pm

vanwinkle wrote:
fatduck wrote:
deadhipsters wrote:Say you went into law school with 25k or so in savings. What potential problems could arise if you took 5k (other than losing the money) out of your student loans each year and put that into an investment along side that 25k- assuming you were making a 7-12 percent return each year? Is this illegal or just unethical?

i'm gonna go with option 3: dumb

die Zauberflote
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Re: Investing your student loans

Postby die Zauberflote » Mon Jun 27, 2011 1:59 pm

Cool story:

During my Dad's 2L summer (30-some-odd years ago) he got a call from a guy he was going to law school with. They said something along the lines of: "Save every dime you can this summer; sell everything you have to raise more money; and this fall use the money from your law school loans to invest with me and thee other students. We found a loophole to exploit and we'll all be multimillionaires a year from now...but we can't tell you what it is unless you can promise us you're on-board."

The four guys were legitimate, top of their class, and LR editors with my Dad. He trusted them, but he didn't want to take a risk he knew nothing about. So he passed.

Fast forward a year...my Dad hasn't heard a peep out of these guys...they just sort of disappeared. Eventually my Dad finds out that their scheme worked and they are all insanely rich. They had found that a certain network of banks somewhere overseas updated their exchange rate information on a delay. They had played the exchange rate and each made tens of millions of dollars.

...bummer for my Dad. You should just do that, though.

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Horchata
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Re: Investing your student loans

Postby Horchata » Tue Jun 28, 2011 7:39 pm

I'm doing the mandatory loan counseling program with FAFSA. The specifically say:

You may use your loan money only to pay for authorized educational expenses at the school that certified your loan eligibility.

* Authorized educational expenses include:
o Tuition
o Room and board
o Institutional fees
o Books
o Supplies
o Equipment
o Dependent child care expenses
o Transportation and commuting expenses
o Rental or purchase of a personal computer
o Loan fees
o Other documented, authorized costs <-- this probably doesn't count

r6_philly
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Re: Investing your student loans

Postby r6_philly » Wed Jun 29, 2011 1:15 am

Horchata wrote:I'm doing the mandatory loan counseling program with FAFSA. The specifically say:

You may use your loan money only to pay for authorized educational expenses at the school that certified your loan eligibility.

* Authorized educational expenses include:
o Tuition
o Room and board
o Institutional fees
o Books
o Supplies
o Equipment
o Dependent child care expenses
o Transportation and commuting expenses
o Rental or purchase of a personal computer
o Loan fees
o Other documented, authorized costs <-- this probably doesn't count


Investment = saving, putting into an account that bear interest. So while using the loan proceeds to buy a car is unethical, putting it in any interest bearing account is not. I am sure you put your proceeds in a savings account and use it as your year progresses. This would be the same (only in a different type of account).

r6_philly
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Re: Investing your student loans

Postby r6_philly » Wed Jun 29, 2011 1:19 am

thesealocust wrote:You can, and you aren't allowed, and you won't get in trouble. It's also dumb, because if you had a way to guarantee a 7 to 12 percent annual return you should cash out as a hedge fund titan. That's the kind of rate Madoff was promising. Stock returns come with risk - you can earn that amount over long periods, usually while experiencing losses along the way. But if you feel like giving it a whirl with your loans, no harm will befall you for that choice, except you might lose the cash.


S&P 500 30 year historical average return is like 11.5% or something, 8.5% inflation adjusted. So if you bought a S&P EFT 30 years ago and sold it today you would have earned 8.5% without doing any management. (pre-tax)

And read my previous post about unethical. You are not doing anything unethical if you are not spending the money. Investing is saving, not spending.

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Verity
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Re: Investing your student loans

Postby Verity » Wed Jun 29, 2011 1:40 am

thesealocust wrote:You can, and you aren't allowed, and you won't get in trouble. It's also dumb, because if you had a way to guarantee a 7 to 12 percent annual return you should cash out as a hedge fund titan. That's the kind of rate Madoff was promising. Stock returns come with risk - you can earn that amount over long periods, usually while experiencing losses along the way. But if you feel like giving it a whirl with your loans, no harm will befall you for that choice, except you might lose the cash.



Madoff actually was promising (and claiming) like 35-40% returns, within a period as short as 6 months. 7% is an adequate return (which you can get from a simple index fund), and 12% is good. You would not be a "hedge fund titan" by promising those returns. You'd be competing with Vanguard. And losing.

Regardless, OP, have you learned nothing from the debt crisis? This is just dumb; and it looks like you have no actual investment experience. Using your parents' charlatan broker carries the quite unnecessary risk of owing a lot of money and getting no education or job prospects in return.

Wait until you have a paying job, then use your own money to invest.

Also, +1 to putting it is an FDIC-insured interest-bearing account. Even CDs are fine.




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