Use student loans as part of a down payment?

[Net]

I have 8k of student loans that I can put in a 12 month CD till I graduate.

Can I use them as part of a down payment on a house?

If not then I'll use 6k of it to pay the unsubsidized portion.

 

[amdskip]

Sure, my friend used them to upgrade his computer.

 

[Tiamat]

Down payment for what?

I took fed sub loans (8.5k per year) and put then into a CD. I then paid it back to the government when I graduated and kept the interest.

The government loan is 6.8% to you right now in interest rate. The principle that you have right now is only worth something if that interest rate is lower than what you can expect for whatever you are trying to make a downpayment on. Many mortgages or car loans (if you have good credit) are below 6.8%, so it wouldn't be a great idea.

However, if you mean down payment on credit card debt (where many times credit card interest rate is much higher than 6.8%) this would be a great idea.

Edit: I didn't notice you said "house". Check around for what your options are for your level of credit. Depending on how good your credit is, it would be better for you to pay the loan back to the government at the end of your grace period and find another means (with lower interest rate) to obtain the money you need for the downpayment on your house.


Another example, I have loans at 4.2% from undergrad. I am in no rush to pay those off as I feel comfortable with paying the difference between the interest rate on the loan and what I am getting on CDs/Savings so that I can have cash to my name (in preparation of a car purchase).

 

[DaWhim]

there is a $7,500 first time home buyer tax credit from the gov't, if you buy a house before 6/30/2009. (the bill is currently in congress, it was a interest free loan, they want to make it free money).

Even after the grace period, interest on student loan are tax deductible. there are no reason to pay it off anytime sooner than you have to except for the peace of mind. of course, remember that money paying off a loan can be invest in elsewhere.