Investing Student Loans Forum

[MexiCali]

Scenario: Student X has been accepted into a few T10 - T20 schools, all of which are out-of-state, will cost sticker and will be paid for with loans. Student X has also been accepted at an in-state T3 with a full scholarship (including living expenses). Student X has enough connections in-state to have secured $130k/year job after graduation no matter the school. Student X selects to attend the T3.

Note: Don't debate the above.

Question: What are possible legal ramifications associated with Student X taking out full law school loans (~$150k) for the purposes of investing?

What not to address: Don't talk about the risk of losing money. Don't talk about particular investment vehicles and their associated ROIs. Don't talk about how it's a "dumb idea", unless you're addressing the legal ramifications associated therewith.

What to address: The idea of student loans being used for "educational purposes" and the associated legalities. If the promissory note stipulates that the loan be used for educational purposes and the loan is not, what happens?

[BlueDiamond]

0L so clearly I suck and have no place here to get that out of the way for the next few posters after me

"If the promissory note stipulates that the loan be used for educational purposes and the loan is not, what happens?"

it is right in the promissory.. get caught and pass the bar? probably not
who cares what the ramifications are.. dont do it

[MexiCali]

I care what the ramifications are. Hence the post. To address the point of matter you laid out:

"...get caught and pass the bar? probably not" - investing student loan money doesn't impede me from passing the bar. Just like buying a plane ticket home from school on holiday break with my student loan money won't impede me from passing the bar.

[BlueDiamond]

I care what the ramifications are. Hence the post. To address the point of matter you laid out:

"...get caught and pass the bar? probably not" - investing student loan money doesn't impede me from passing the bar. Just like buying a plane ticket home from school on holiday break with my student loan money won't impede me from passing the bar.

so very wrong

[MexiCali]

Write something substantial next time.

[Pink]

I believe most schools cut loans off at the COL estimate for the year. Scholarships are subtracted from that. So I'm not sure how you would get 150k in loans in addition to your scholarship unless you were to take out private loans. In that case, I don't know that there would be any legal ramifications, however the interest/payment terms would be much higher/less desirable (payments not deferred, etc), and it would probably cancel out most if not all of any return you would get on your investment.

[09042014]

Scenario: Student X has been accepted into a few T10 - T20 schools, all of which are out-of-state, will cost sticker and will be paid for with loans. Student X has also been accepted at an in-state T3 with a full scholarship (including living expenses). Student X has enough connections in-state to have secured $130k/year job after graduation no matter the school. Student X selects to attend the T3.

Note: Don't debate the above.

Question: What are possible legal ramifications associated with Student X taking out full law school loans (~$150k) for the purposes of investing?

What not to address: Don't talk about the risk of losing money. Don't talk about particular investment vehicles and their associated ROIs. Don't talk about how it's a "dumb idea", unless you're addressing the legal ramifications associated therewith.

What to address: The idea of student loans being used for "educational purposes" and the associated legalities. If the promissory note stipulates that the loan be used for educational purposes and the loan is not, what happens?

You can only get loans for the cost of attendance - scholarships. Nobody is going to give you 45K when you have a 45K scholarship. So you really can't pull this off.

[MexiCali]

Pink and Desert Fox - Understood. Thanks. The central question still lingers. Can a student invest student loans without legal ramifications. Forgetting the "Student X" example, let us say a student needed loans to attend but found him/herself with a surplus at year's end. Could they invest that surplus w/o ramifications?

[IAFG]

Pink and Desert Fox - Understood. Thanks. The central question still lingers. Can a student invest student loans without legal ramifications. Forgetting the "Student X" example, let us say a student needed loans to attend but found him/herself with a surplus at year's end. Could they invest that surplus w/o ramifications?

yes but the school isn't going to disburse a substantial amount, only COL.

[D. H2Oman]

Pink and Desert Fox - Understood. Thanks. The central question still lingers. Can a student invest student loans without legal ramifications. Forgetting the "Student X" example, let us say a student needed loans to attend but found him/herself with a surplus at year's end. Could they invest that surplus w/o ramifications?

It's not long there's anyone keep track of where your student loan money gets spent after it goes into your bank account.
It doesn't make it or you any less stupid though.

[Pink]

Pink and Desert Fox - Understood. Thanks. The central question still lingers. Can a student invest student loans without legal ramifications. Forgetting the "Student X" example, let us say a student needed loans to attend but found him/herself with a surplus at year's end. Could they invest that surplus w/o ramifications?

It's not long there's anyone keep track of where your student loan money gets spent after it goes into your bank account.
It doesn't make it or you any less stupid though.

[MartianManhunter]

Yes, you could invest it. No, you won't get in trouble.

[MexiCali]

When tax time comes around, will the IRS question the source of those investments?

[Na_Swatch]

sure you could invest the couple of extra thousand dollars you squeeze out of your COL loans... will it make any large difference in the long run? nope

[magicman554]

Don't forget that in order to be bar-certified, you have to undergo a character investigation. If they find out that you used a school loan like only Gordon Gekko would, it could cost you your license.

Also, the bank could find out and call its loan. Game over.

[MartianManhunter]

When tax time comes around, will the IRS question the source of those investments?

They'd have a difficult time proving that the money didn't come from your summer job or Rich Uncle Pennybags. It is unlikely that investing will bring up any c&f issues. It is also unlikely that the bank will call it's loan. I understand that law students are risk averse and buy into all these boogeymen, but the real issue is whether or not your competent enough to not lose your money once you've invested.

[3ThrowAway99]

[/quote]You can only get loans for the cost of attendance - scholarships. Nobody is going to give you 45K when you have a 45K scholarship. So you really can't pull this off.[/quote]

TCR- in this scenario I don't think you would get loans above COL. However, it is possible you could get apprx. 20-25k per year in COL. The idea of student loans is that they are NEED-based, so if you were honest on the loan applications about your financial situation then I doubt you would even get COL loans (unless the COL money really is needed to get by on, in which case I don't think you would be in any position to make a real financial investment except perhaps by keeping the loans in a money market savings until you spent it down).

If you're serious about finding out this answer you could always give studentloans.gov a call. Obviously the practice is not in line with the purpose of getting student loans to cover actual financial need, but I certainly don't think its illegal to hold loan money if it doesn't end up being needed. I think where the problem comes in is if you are claiming need where it isn't there and your real motive is simply investment of the government's money.

Bottomline given your hypo though is that it sounds like you don't really understand how student loans work re: tuition loans v. COL.

[bellamy]

When tax time comes around, will the IRS question the source of those investments?

They'd have a difficult time proving that the money didn't come from your summer job or Rich Uncle Pennybags. It is unlikely that investing will bring up any c&f issues. It is also unlikely that the bank will call it's loan. I understand that law students are risk averse and buy into all these boogeymen, but the real issue is whether or not your competent enough to not lose your money once you've invested.

Perjury is not only a felony which may land you in prison but would certainly result in you losing your license to practice. If any investigative agency asks how you used the money and you lie you are dead meat. The question of what the risk of you being the subject of any investigation is a separate issue. This approach is the classic low probabilty high impact case. If you win you may make a little money .If you lose you lose everything including you freedom. Ask Martha Stewart

[dextermorgan]

Lol, you're fucked.

[AreJay711]

I really think the COL portion of your loans can be spent on anything. I mean you could always invest some of it and say it was for entertainment purposes (because you get a kick out of it) just like you could take a trip to Vegas if you had some extra $ leftover. It wouldn't be a whole lot that you had extra though.

[MartianManhunter]

When tax time comes around, will the IRS question the source of those investments?

They'd have a difficult time proving that the money didn't come from your summer job or Rich Uncle Pennybags. It is unlikely that investing will bring up any c&f issues. It is also unlikely that the bank will call it's loan. I understand that law students are risk averse and buy into all these boogeymen, but the real issue is whether or not your competent enough to not lose your money once you've invested.

Perjury is not only a felony which may land you in prison but would certainly result in you losing your license to practice. If any investigative agency asks how you used the money and you lie you are dead meat. The question of what the risk of you being the subject of any investigation is a separate issue. This approach is the classic low probabilty high impact case. If you win you may make a little money .If you lose you lose everything including you freedom. Ask Martha Stewart

If you were convicted of perjury, yes, that'd be a problem. But that's just kind of a ridiculous scenario, isn't it? OP isn't going to be Warren Buffet, the scrutiny s/he faces regarding their personal investments will be minimal.

OP faces very little chance of every having perjury charges brought against him for investing his loans in the first place (about the same amount of risk as the girl who buys new pumps, or the kid who bought a new costume for a halloween party, or the guys that go to the casino during spring break, or the hundreds of thousands of students that buy booze every Thursday night). It's doubtful that OP putting some of his loan money in a mutual fund or some stock is going to seriously affect his chances of passing the bar. If someone were to actually try to bring charges like that (as silly as that is), they'd have a difficult time furnishing evidence to show that the exact $1000 or so he invests came from his refund check and not the money he earned working the summer before law school, or something similar, to prove that s/he was lying. This, of course, is assuming that it's even illegal for him to invest in the first place. C'mon.

[bellamy]

You really miss the issue. I acknowleged that the risk of consequences is small but once again the potential impact is career distroying. I recommend that you try Wall Street trading given your ready acceptance of the risk of Black Swan events. If you want to successfully practice law ( and I recognize you may not) be honest, truthful and risk adverse. Bill Clinton would never have been impeached if he had simply told the truth

[krad]

There are a # of threads on this topic

[ggocat]

Disregarding the practicalities of being caught, and assuming the worst possible consequences, I think you could be charged with theft of public monies under 18 U.S.C. 641 and face 10 years in prison, fines, and restitution (paying the money back).

Although not really a "legal" issue, you would likely not be admitted to the bar.