What to do with extra loan money

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
User avatar
Bildungsroman
Posts: 5548
Joined: Sun Apr 11, 2010 2:42 pm

Re: What to do with extra loan money

Postby Bildungsroman » Tue Apr 17, 2012 11:54 pm

Image

shoeshine
Posts: 1241
Joined: Wed May 04, 2011 10:58 pm

Re: What to do with extra loan money

Postby shoeshine » Tue Apr 17, 2012 11:56 pm

Ded Precedent wrote:I'll probably just put it in an index fund.

Why?

You are borrowing that money at 7%. You will probably not even break even in an index fund? Why not just pay it pack.

User avatar
Tiago Splitter
Posts: 15457
Joined: Tue Jun 28, 2011 1:20 am

Re: What to do with extra loan money

Postby Tiago Splitter » Tue Apr 17, 2012 11:57 pm

shoeshine wrote:You will probably not even break even in an index fund?


What makes you say this?

User avatar
laxbrah420
Posts: 2748
Joined: Fri Aug 12, 2011 1:53 am

Re: What to do with extra loan money

Postby laxbrah420 » Tue Apr 17, 2012 11:58 pm

you could also place a bridge jumper type bet --NFL home fav ML @ ~-1000 to cover the interest

User avatar
Ded Precedent
Posts: 767
Joined: Thu Mar 08, 2012 11:26 pm

Re: What to do with extra loan money

Postby Ded Precedent » Wed Apr 18, 2012 2:37 am

I'll just play one hand of blackjack. Just one.

User avatar
Ded Precedent
Posts: 767
Joined: Thu Mar 08, 2012 11:26 pm

Re: What to do with extra loan money

Postby Ded Precedent » Wed Apr 18, 2012 2:38 am

shoeshine wrote:
Ded Precedent wrote:I'll probably just put it in an index fund.

Why?

You are borrowing that money at 7%. You will probably not even break even in an index fund? Why not just pay it pack.

I will at the end of the year if I don't need it

User avatar
dingbat
Posts: 4976
Joined: Wed Jan 11, 2012 9:12 pm

Re: What to do with extra loan money

Postby dingbat » Wed Apr 18, 2012 5:14 am

Ded Precedent wrote:
shoeshine wrote:
Ded Precedent wrote:I'll probably just put it in an index fund.

Why?

You are borrowing that money at 7%. You will probably not even break even in an index fund? Why not just pay it pack.

I will at the end of the year if I don't need it

Not if the market has an adverse movement.
Remember, the stock market can go down as well as up.
You're basically borrowing money so you can gamble

pno12006
Posts: 19
Joined: Wed Mar 07, 2012 7:44 pm

Re: What to do with extra loan money

Postby pno12006 » Wed Apr 18, 2012 3:37 pm

Take the 10k and enter the wsop.

Seriously though, if you can't out pace the interest rate with your investment strategy, then you are making a mistake by borrowing money you don't need.

If you are going to blow it, however, you should at least have fun. Vegas and Cancun come to mind.

User avatar
dingbat
Posts: 4976
Joined: Wed Jan 11, 2012 9:12 pm

Re: What to do with extra loan money

Postby dingbat » Wed Apr 18, 2012 5:01 pm

pno12006 wrote:Take the 10k and enter the wsop.

Seriously though, if you can't out pace the interest rate with your investment strategy, then you are making a mistake by borrowing money you don't need.

If you are going to blow it, however, you should at least have fun. Vegas and Cancun come to mind.

TCR

Oh, and you're not going to outpace. Don't think you will.
(not that it isn't possible, but if you are that good an investor that you can expect to, you shouldn't be considering law school)

iowalum
Posts: 326
Joined: Mon Oct 25, 2010 5:15 pm

Re: What to do with extra loan money

Postby iowalum » Wed Apr 18, 2012 5:21 pm

Bildungsroman wrote:Image


This was funny.

pno12006
Posts: 19
Joined: Wed Mar 07, 2012 7:44 pm

Re: What to do with extra loan money

Postby pno12006 » Thu Apr 19, 2012 5:46 am

dingbat wrote:
pno12006 wrote:Take the 10k and enter the wsop.

Seriously though, if you can't out pace the interest rate with your investment strategy, then you are making a mistake by borrowing money you don't need.

If you are going to blow it, however, you should at least have fun. Vegas and Cancun come to mind.

TCR

Oh, and you're not going to outpace. Don't think you will.
(not that it isn't possible, but if you are that good an investor that you can expect to, you shouldn't be considering law school)


I meant this as general advice for your whole life, not just law school loans.

If you can get to ROI > APR then you should be in the markets, forex, or investment banking.

Real Madrid
Posts: 835
Joined: Mon May 30, 2011 12:21 am

Re: What to do with extra loan money

Postby Real Madrid » Thu Apr 19, 2012 6:02 am

Tiago Splitter wrote:
lifestooquick wrote:At my school they tell us to take the full amount (we can't request more throughout the year) and if you have leftover to just submit a lump sum payment back


You don't get the origination fee back right?


Actually, I think you do, so long as you make the adjustment within 60 (or maybe it was 90?) days.

User avatar
dingbat
Posts: 4976
Joined: Wed Jan 11, 2012 9:12 pm

Re: What to do with extra loan money

Postby dingbat » Thu Apr 19, 2012 7:28 am

pno12006 wrote:
I meant this as general advice for your whole life, not just law school loans.

If you can get to ROI > APR then you should be in the markets, forex, or investment banking.

Good point.
Realistically, folks, you should never borrow money to invest. If faced with a choice, pay down your loans. You're not that good. (half the guys on wall street aren't that good)

The only exception is a mortgage. If you can snag a low rate and then deduct the interest, you could effectively be paying less than 3% on it.

User avatar
2014
Posts: 5831
Joined: Sat Jun 05, 2010 3:53 pm

Re: What to do with extra loan money

Postby 2014 » Sat Apr 21, 2012 12:41 am

Had one borrowed the full amount and immediately put it in an index fund the last week of August 2011 as of now it would be up ~17% over the 9 months. Some of that would be gone in fees, but you would still would have made 5-8% on your money when you take away fees and loan interest.

Stock market is a gamble though, it certainly can and does work for a lot of people but it's risky. Had you for some reason invested in April 2011 instead of August you would be at a several percent net loss now instead of a nearly double digit gain.

Point is though that it isn't necessarily a stupid idea, but it comes with risks and if it fails you shouldn't feel too surprised.

User avatar
Na_Swatch
Posts: 472
Joined: Sun Sep 20, 2009 4:40 pm

Re: What to do with extra loan money

Postby Na_Swatch » Sat Apr 21, 2012 12:51 am

2014 wrote:Had one borrowed the full amount and immediately put it in an index fund the last week of August 2011 as of now it would be up ~17% over the 9 months. Some of that would be gone in fees, but you would still would have made 5-8% on your money when you take away fees and loan interest.

Stock market is a gamble though, it certainly can and does work for a lot of people but it's risky. Had you for some reason invested in April 2011 instead of August you would be at a several percent net loss now instead of a nearly double digit gain.

Point is though that it isn't necessarily a stupid idea, but it comes with risks and if it fails you shouldn't feel too surprised.


Wow 17% gain? Everyone should be taking out 85k a year and sticking as much as possible into stocks!*


*it's not like the past few years have seen a giant cratering of the economy that initially wiped out over 35% of stock market wealth. Furthermore August in 2011 was not right after a sudden 25% drop in the stock market caused by Euromarket fears that later proved to be unfounded.... Wait a minute....

pno12006
Posts: 19
Joined: Wed Mar 07, 2012 7:44 pm

Re: What to do with extra loan money

Postby pno12006 » Sat Apr 21, 2012 4:23 am

^Agreed.

Even if you are super stingy, (which also means you are probably too risk averse to even try this) you would have maybe 12k/yr to goof off with. At 8% (subtracting fees and loan rates) that nets you about a G. (Which is a lot, but not compared to how much you will already owe.)

You simply won't have enough money for a serious short term investment. You could just hold your stocks though and hope to grab a few ten-baggers (like MSFT or AAPL) so in ten years it is substantial. I might buy like 500 bucks worth of pennys and hope to multiply. Who knows?... In 10 years it could be 35k. But average market gains are mostly useless here (Only serious squares buy indices [little risk, little reward]).

More than that is a serious gamble. Law school is risky enough without blowing 20k you could have used to pay down the principle.

User avatar
dingbat
Posts: 4976
Joined: Wed Jan 11, 2012 9:12 pm

Re: What to do with extra loan money

Postby dingbat » Sat Apr 21, 2012 7:56 am

2014 wrote:Had one borrowed the full amount and immediately put it in an index fund the last week of August 2011 as of now it would be up ~17% over the 9 months. Some of that would be gone in fees, but you would still would have made 5-8% on your money when you take away fees and loan interest.

Stock market is a gamble though, it certainly can and does work for a lot of people but it's risky. Had you for some reason invested in April 2011 instead of August you would be at a several percent net loss now instead of a nearly double digit gain.

Point is though that it isn't necessarily a stupid idea, but it comes with risks and if it fails you shouldn't feel too surprised.

Yes, and had one bet on #32 at the Bellagio's 3rd Roulette table on the left at 8.15pm on March 28th of this year, you would have earned 3500%, without losing anything in fees or interests. We should all go to vegas.

The truth is, historically, the stock market averages about 8% per year (not including fees). Current GradPlus rates are 7.8% per year plus a 4% origination fee (please correct me if I'm wrong)
Mathematically, that means it'll take 23 years to break even, if you could hypothetically invest in an index without fees.
and that's not even discounting for taxes. Assuming 15% long term capital gains, well, let's just say you won't break even during your lifetime

Yes, you could get really lucky and invest just before a major upswing, but you're just as likely to invest just before a major crash.
If you're taking out extra cash just to be on the safe side, to have an emergency fund, you shouldn't be investinggambling with it. Your emergency fund should always be held in cash or cash equivalents (money market, certificate of deposit, etc.).

2014 wrote:Had one borrowed the full amount and immediately put it in an index fund the last week of August 2011 as of now it would be up ~17% over the 9 months. Some of that would be gone in fees, but you would still would have made 5-8% on your money when you take away fees and loan interest.
this is actually incorrect. you would have made an infinite return, as your initial investment was $0 (it's all borrowed money). If you leverage (borrow money to invest) your profit margin isn't your return minus your loan rate, but the actual $ earned divided by the actual $ put up by yourself.

But, if you want to be pedantic, you could take your cash outlay (deposit) as your cash investment and divide your profits by that amount.
Last edited by dingbat on Sat Apr 21, 2012 8:18 am, edited 1 time in total.

User avatar
sunynp
Posts: 1899
Joined: Tue May 24, 2011 2:06 pm

Re: What to do with extra loan money

Postby sunynp » Sat Apr 21, 2012 8:09 am

Isn't it a violation of your loan agreement/ promissory note to use loan money for these investment purposes.
OP be very careful not to be tempted to blow that extra money on stuff you don't really need. You should pay back what you don't need. And you should probably not borrow more than you need over a very small emergency fund.

User avatar
dingbat
Posts: 4976
Joined: Wed Jan 11, 2012 9:12 pm

Re: What to do with extra loan money

Postby dingbat » Sat Apr 21, 2012 8:16 am

pno12006 wrote:You could just hold your stocks though and hope to grab a few ten-baggers (like MSFT or AAPL) so in ten years it is substantial. I might buy like 500 bucks worth of pennys and hope to multiply. Who knows?... In 10 years it could be 35k. But average market gains are mostly useless here (Only serious squares buy indices [little risk, little reward]).

Even the biggest and best firms can fuck up and be gone tomorrow (see: Lehman, Enron)
Past performance is no indication of future performance

investing in penny stocks (unless you know what you're doing. You don't) is like playing roulette: if you gamble correctly, you make a bundle, but most of your chips go down the drain

Buying indixes is a great way to invest without taking unneccesary risks. there are indixes for anything, so, if, for example, you think the financial sector is about to rebound, you buy a financial stock index.
Indexes are like mutual funds, it's a great way to accomplish diversified investmenting without having to put up a lot of cash.
You can achieve medium risk and medium reward (or more, if you pick the right index), but you're not being stupid.
Investing in a non-diversified manner is high risk and most people who do so eventually wind up with nothing. Like going to a casino, you might go up once in a while, but the house always wins.

User avatar
Tiago Splitter
Posts: 15457
Joined: Tue Jun 28, 2011 1:20 am

Re: What to do with extra loan money

Postby Tiago Splitter » Sat Apr 21, 2012 12:00 pm

pno12006 wrote:(Only serious squares buy indices [little risk, little reward]).


Got a kick out of this line...

pno12006 wrote: I might buy like 500 bucks worth of pennys and hope to multiply


...especially in light of this line.

Buying penny stocks is no different than throwing the money into a slot machine. It's not an investment strategy.

User avatar
dingbat
Posts: 4976
Joined: Wed Jan 11, 2012 9:12 pm

Re: What to do with extra loan money

Postby dingbat » Sat Apr 21, 2012 12:18 pm

Tiago Splitter wrote:
pno12006 wrote:(Only serious squares buy indices [little risk, little reward]).


Got a kick out of this line...

pno12006 wrote: I might buy like 500 bucks worth of pennys and hope to multiply


...especially in light of this line.

Buying penny stocks is no different than throwing the money into a slot machine. It's not an investment strategy.

Yeah, I should have treated this like the trolling I really wish that it was, rather than the serious post I fear it is.

pno12006
Posts: 19
Joined: Wed Mar 07, 2012 7:44 pm

Re: What to do with extra loan money

Postby pno12006 » Sat Apr 21, 2012 1:41 pm

dingbat wrote:
Tiago Splitter wrote:
pno12006 wrote:(Only serious squares buy indices [little risk, little reward]).


Got a kick out of this line...

pno12006 wrote: I might buy like 500 bucks worth of pennys and hope to multiply


...especially in light of this line.

Buying penny stocks is no different than throwing the money into a slot machine. It's not an investment strategy.

Yeah, I should have treated this like the trolling I really wish that it was, rather than the serious post I fear it is.


What I meant was that in this situation you would have to be pretty square to pick up an index. You'd have very little money and time. So even at a good return rate you would have not actually made that much money. (There are easier ways to make less than 1K.) Now for someone planning for retirement or a very rich man, they would be a more reasonable proposition (because they would have the money and/or time).

And yes, the second part is a flame. I also previously indicated that entering a poker tourney was a good idea.

Decimal
Posts: 63
Joined: Wed Jul 06, 2011 3:35 am

Re: What to do with extra loan money

Postby Decimal » Sat Apr 21, 2012 1:53 pm

iowalum wrote:
chimp wrote:You can request additional funds at any point if need be. Therefore, doing what you did makes no sense.


If anyone actually has experience with this - what kind of paperwork is needed/how long does it take?


I'm curious about this as well in the event of a tight bind.

User avatar
Bildungsroman
Posts: 5548
Joined: Sun Apr 11, 2010 2:42 pm

Re: What to do with extra loan money

Postby Bildungsroman » Sat Apr 21, 2012 2:34 pm

Decimal wrote:
iowalum wrote:
chimp wrote:You can request additional funds at any point if need be. Therefore, doing what you did makes no sense.


If anyone actually has experience with this - what kind of paperwork is needed/how long does it take?


I'm curious about this as well in the event of a tight bind.

Ask your law school, tls isn't your mother.

User avatar
luuma
Posts: 246
Joined: Sat Dec 10, 2011 2:04 am

Re: What to do with extra loan money

Postby luuma » Mon Apr 23, 2012 4:54 pm

dingbat wrote:
lifestooquick wrote:At my school they tell us to take the full amount (we can't request more throughout the year) and if you have leftover to just submit a lump sum payment back

Rather than that, reduce the amount you borrow the following year



Interest %




Return to “Financial Aid”

Who is online

Users browsing this forum: No registered users and 1 guest