Is this smart? Student loan manipulation

[EyeMWing]

Strictly speaking, I don't NEED my subsidized stafford loan for my first two semesters (possibly even longer). But since no interest is accrued while I'm in school, wouldn't it be smart for me to take them anyway and place the money that I would have instead spent on tuition (totalling the exact amount of the loan) and put it in CD accounts or buy treasury bonds or something else with an interest rate that's damn well guaranteed to give me the money back later - and then when I'm done school, theoretically speaking, if I kept this up the whole time, I could just cash that in and pay it all off at once, and have cash left over?

Constructive thoughts? It seems to me that I just stumbled on to the fabled "free money" that everyone goes into financial aid programs expecting, but I'm sure there's SOMETHING I'm forgetting that makes this an unprofitable deal.

Edit: Nevermind. Don't have extra money anymore.

 

[BigJ]

Doesn't the Subsidized Stafford Loan get dispursed directly to the school you're going to? Instead of them cutting you a check.

 

[EyeMWing]

Originally posted by: BigJ
Doesn't the Subsidized Stafford Loan get dispursed directly to the school you're going to? Instead of them cutting you a check.

Yes, it does. But I have the money to pay for tuition WITHOUT the loan at all. My own personal cash would be going into the banks/bonds/whatever

 

[dullard]

1) There is a 3% fee for student loans. At today's low interest rates, the fee does take a big chunk of your interest gains. You get half of this back if your first 12 payments are on time though.

2) What you are proposing is illegal.

3) What you are proposing can be very good financially, especially if you use the funds for a house downpayment when you graduate instead of paying significantly higher interest rates on a mortgage. But of course, it is illegal so I didn't just say that.

 

[KoolAidKid]

Originally posted by: BigJ
Doesn't the Subsidized Stafford Loan get dispursed directly to the school you're going to? Instead of them cutting you a check.

Any amount over the tuition and fees is usually disbursed to the student.

To the OP, if you have the discipline not to spend any of the money, then by all means do so. Safest: a CD or ING savings account. Less safe: an index fund. Stupid: a single stock purchase. Just my opinion, of course.

 

[PHiuR]

why is it illegal?

 

[BigJ]

Originally posted by: EyeMWing

Originally posted by: BigJ
Doesn't the Subsidized Stafford Loan get dispursed directly to the school you're going to? Instead of them cutting you a check.

Yes, it does. But I have the money to pay for tuition WITHOUT the loan at all. My own personal cash would be going into the banks/bonds/whatever

Ok, so what's the big deal? I'd imagine plenty of people do exactly what you're thinking of, and it's not a big deal. Just make sure you don't go off and blow the money, and wind up having interest add up when it comes time to pay off the loan.

More information here:

http://www.staffordloan.com/stafford-loan-info/undergraduate-stafford-loan.php

 

[EyeMWing]

Originally posted by: dullard
1) There is a 3% fee for student loans. You get half of this back if your first 12 payments are on time though.

2) What you are proposing is illegal.

3) What you are proposing can be very good financially, especially if you use the funds for a house downpayment when you graduate instead of paying significantly higher interest rates on a mortgage. But of course, it is illegal so I didn't just say that.

Illegal? Where? I'm not spending the loan on anything but education, I'm spending other money on other things, though.

 

[FoBoT]

if by smart you mean engaging in speculative and risky fiduciary schemes, then yes, that is smart

 

[claydawg]

dew it

 

[dullard]

Originally posted by: EyeMWing
Illegal? Where? I'm not spending the loan on anything but education, I'm spending other money on other things, though.

Read the student loan handbook, and the student loan papers that you sign. Both state that if you have the funds on your own, you cannot legally take this loan. In fact, I think you sign 2-3 times per loan that you don't have other funds. Your statement that you had other money available would violate this part of the contract.

 

[DAGTA]

I'd say don't do it. When you apply for student aid next year, you are legally required to disclose any and all investments you have. The more you have, the less aid you are eligible for. So, while it seems like a good idea to invest that money, it may hurt your ability to get aid in the future.

 

[EyeMWing]

Originally posted by: FoBoT
if by smart you mean engaging in speculative and risky fiduciary schemes, then yes, that is smart

Speculative and risky - I'm not talking about open-market stuff that has a chance in hell at dissapearing off the face of the earth. The US treasury has never failed to pay off a bond (and the day they do is the day we have a lot more to worry about than how to pay off student loans), and bank failures are few and far between (and insured against, anyway). I wouldn't touch corporate stocks and bonds with my wiener, much less money that I actually need at some point.

But I'd still like further clarification on the supposed legal issues.

 

[EyeMWing]

Originally posted by: dullard

Originally posted by: EyeMWing
Illegal? Where? I'm not spending the loan on anything but education, I'm spending other money on other things, though.

Read the student loan handbook, and the student loan papers that you sign. Both state that if you have the funds on your own, you cannot legally take this loan. In fact, I think you sign 2-3 times per loan that you don't have other funds. Your statement that you had other money available would violate this part of the contract.

Handbook? I'm yet to see a single piece of paper, it's all been electronic, and I've read it all - that stuff has not once come up. I guess I'll call the student aid office and check.

 

[dullard]

Originally posted by: EyeMWing
Handbook? I'm yet to see a single piece of paper, it's all been electronic, and I've read it all - that stuff has not once come up. I guess I'll call the student aid office and check.

It is a combination of checks that you must pass.
1) You sign that you need the money to pay education costs. Clearly if you have other money, then you don't need it this year.
2) You sign that all the money is going to education expenses that your other funds cannot cover. Clearly your other funds aren't covering your education expenses.
3) You sign that you will repay any excess funds immediately. Clearly if you have other money, then you have received excess student loan funds that you are proposing to not repay.

No, there isn't one line that says "borrowing more than you need is illegal". However, putting the three above together in context, you are doing what you aren't supposed to do. That said, many people with student loans do this and it isn't enforced.

 

[EyeMWing]

Originally posted by: dullard

Originally posted by: EyeMWing
Handbook? I'm yet to see a single piece of paper, it's all been electronic, and I've read it all - that stuff has not once come up. I guess I'll call the student aid office and check.

It is a combination of checks that you must pass.
1) You sign that you need the money to pay education costs. Clearly if you have other money, then you don't need it this year.
2) You sign that all the money is going to education expenses that your other funds cannot cover. Clearly your other funds aren't covering your education expenses.
3) You sign that you will repay any excess funds immediately. Clearly if you have other money, then you have received excess student loan funds that you are proposing to not repay.

No, there isn't one line that says "borrowing more than you need is illegal". However, putting the three above together in context, you are doing what you aren't supposed to do. That said, many people with student loans do this and it isn't enforced.

Ahh, that would be why. I havn't actually signed the agreement yet, just read through all the pre-signing-your-life-away crud. Then again, at the rate things are going this year, chances are the alternate money will dissapear in a puff of health-care smoke and this will all have been a mental exercise in "How can I get something for nothing"

 

[theGlove]

illegal and money laundering

 

[EyeMWing]

Originally posted by: theGlove
illegal and money laundering

money laundering

n : concealing the source of illegally gotten money

Illegal, apparently. Money laundering, negative.

 

[EyeMWing]

Okay, and in the past 35 seconds, the alternate source of funding just went away. BBL, paramedics.

 

[Vanman]

I have a friend that did this, albeit when rate of return on CD's, MMA's, etc was a fair amount higher than they are today. He invested all his student loan money over the course of 4 yrs, then paid off the loans on the date of the first payment. He was able to bank around $16k after it was all said and done, turned that into a down payment on a house. Don't think this was strictly Stafford loan money, he was taking enough for tuiton, books & housing.

 

[mrrman]

well when I started college, I had $25K in the bank...2 colleges that I narrowed down had a chegue each for $5k for me to use...needless to say I used the college's $

 

[msparish]

The paper work that you need to fill out will say that the money must be used for educational expenses. If it goes towards your tuition and you save your own, it is perfectly legal. I talked to my financial aid office about this very thing.