Comments on: Nate’s Dilemma: Student Loans or Investments?

By: rodgerlvu

rodgerlvu — Fri, 15 May 2009 06:49:08 +0000

I’m not sure how much this will help, but the interest on his student loans are also tax-deductible, right? That kind of lessens the weight of paying the interest thanks for your idea

By: Nicholas Barry

Nicholas Barry — Thu, 26 Mar 2009 19:58:30 +0000

I’m about to start Grad school in the fall. I have a full scholarship, and I’m wondering if I should apply for student loans expressly for the purpose of investing.

In this credit climate, I’m not sure if I can get a good rate, and even if I do, I’m not sure if investing in index funds would be wise, given the uncertainty of the market – if I get my loans, even if they’re interest-free while I’m at school, I might end up with less at the end of the two years than at the beginning.

But if I planned on keeping the money in the market long-term, perhaps it would be wise to get started with prices low today, and just make loan payments out of my income. Do you have any advice?

By: jake

jake — Wed, 07 Feb 2007 03:07:43 +0000

In response to Jim Kane.

I disagree with you that using extra student loans for personal reasons is unethical. If you break down the fees of school and what FAFSA factors into how much you receive, they include “personal Costs”.

Here is directly from my financial aid reward.

Cost of Attendance:
Fees
Room and Board
Books and Supplies
Transportation
Personal Costs

The personal cost is there so that you have a life outside of study.

Another way I myself look at it is this. It is a loan, which you pay back. If he had gotten free money for education and used that for illegal activities than I believe its unethical.

When you look at it at an economic level, the money he is spending goes back to the economy which goes back to you and me in our pay checks. Again in the end he pays the loan back, so its a win win for everyone.

Not only that, you do not factor in the education that he has invested in. This investment in education is not just personal it can possibly help everyone in society. His education can lead to high wages, which is taxed and in turn goes back to public programs. Because of his education level and with it high salaries in his life time he will pay back enough in taxes to make the spending on personal splurges irrelevant.

Unethical? I don’t think so, if anything it helps society. He pays the loan back, and if he does use the loan to invest and gets profits that adds to the economy. In the end the money will be spent which will probably go to me or you in our paycheck, if not it will for our kids and their kids and so forth.

Education pays.

By: Tax Deductions?

Tax Deductions? — Wed, 03 Jan 2007 18:27:25 +0000

In response to Jim Kane: “Also, in response to the previous commenter, the interest on your loan is only deductible if it’s used for postsecondary education.”
Are you certain about this? My understanding (NOT a CPA, NOT a tax attorney) is that the student loan tax deduction is capped at a maximum $2500 deduction, for single filers who make $50K or less per year, then phased out for those who make up to $65K per year. I think that you are confusing tax deductions for student loan interest with HOPE credits and Lifetime Learning credits, which are a totally different matter. Check out: which has all the details.
Nate should consider: the benefits of consolidating student loans, possibilities of receiving payment incentives reducing your student loan interest by up to 1.5 percent, the maximum amount that he contribute to an IRA during each tax year, and the possibility that a wonderful career might not begin the instant he leaves school or might require a potentially costly relocation, with accompanying deposits on housing. Nate may want to hang on to a buffer until works starts and he actually receives his first paycheck.
Good luck!

By: Kevin

Kevin — Thu, 28 Dec 2006 17:56:39 +0000

I am big on investing, but would disagree. However, my disagreement is based on only the facts stated, not his whole financial picture.

Does he have an emergency savings with 3-6 months worth of living expenses? If not, he should put the 8k into an ING/HSBC online account (earning 4.35%/5.05% interest, respectively). True, he is paying more interest on the loan, but as mentioned above that should be tax deductible and the online accounts help remove the sting of the decision.

More importantly, if something happens to his first job, he has a buffer — something most people these days do not have.

If he has emergency savings, I would use the money to repay the loan by either sending in a massive payment, or again by putting it in online savings and paying out over time.

By: Jim Kane

Jim Kane — Sat, 23 Dec 2006 02:29:41 +0000

It sounds like Nate has done a great job of living within his means throughout his college career, so I hesitated to write this; however, I hope he’ll consider an alternative point of view. Nate, when you took out that loan, it was for postsecondary education purposes (which explains your favorable interest rate, provided and guaranteed by the taxpaying public). To then use that money for personal gain seems unethical to me. I will now freely admit that I did exactly that ten years ago when I was a grad student, with one exception — instead of investing in stocks, I invested in a 21″ monitor. I won’t claim any special financial sense, but I hope you’ll think about the “personal” part of this personal finance decision (which has little to do with numbers). Also, in response to the previous commenter, the interest on your loan is only deductible if it’s used for postsecondary education.

Maybe you can guess which course of action I’d recommend. :-)

By: Stingy Student

Stingy Student — Fri, 22 Dec 2006 20:56:28 +0000

I’m not sure how much this will help, but the interest on his student loans are also tax-deductible, right? That kind of lessens the weight of paying the interest.