Tell me if I'm crazy for doing this...

[brooke]

Sooooo, say I have this "friend," see, who is going to school part-time and it costs $26K per year (payable semesterly, in 2 lump sums), so that's $13K in August and another $13K in January (or whatever).
She qualified for the max in subisidized ($8.5K/yr) and unsub ($10K/yr) fed loans and has a private zero-interest loan (benefactor-ish) for total tuition and room and board and such.
Even though she has the benefactor, she's thinking of putting the $13K on a credit card and paying it off the next day (before interest is charged) with the benefactor's money to earn a shitload of points to play with.
She is also thinking of taking all of the $8.5K of sub. loans (none of the unsub) and investing it in CDs or savings acct and letting it sit (earning 4.75%) until the first payment is due (after law school), thusly not having to pay interest there either.

Anything wrong with her logic or financial aid understanding?

[whoisjohngalt]

Sooooo, say I have this "friend," see, who is going to school part-time and it costs $26K per year (payable semesterly, in 2 lump sums), so that's $13K in August and another $13K in January (or whatever).
She qualified for the max in subisidized ($8.5K/yr) and unsub ($10K/yr) fed loans and has a private zero-interest loan (benefactor-ish) for total tuition and room and board and such.
Even though she has the benefactor, she's thinking of putting the $13K on a credit card and paying it off the next day (before interest is charged) with the benefactor's money to earn a shitload of points to play with.
She is also thinking of taking all of the $8.5K of sub. loans (none of the unsub) and investing it in CDs or savings acct and letting it sit (earning 4.75%) until the first payment is due (after law school), thusly not having to pay interest there either.

Anything wrong with her logic or financial aid understanding?

Your credit card limit goes up to 13k?!

I don't think you're crazy, just stupid.  Talk to your school about it - there might be strings attached to your school loans.  I thought the fed gov't tried to clean this up with legislation after everyone borrowed at 2% and invested.

[brooke]

Well, thanks for calling me stupid, but...
I really don't think I am being stupid about putting it on the credit card and then immediately paying it off.  Yes, I have a maximum of $12,500 on one of my credit cards and the reason I do is because I put every single thing I can on that card in order to get points and then I pay it off weekly so that I am never paying any interest on these purchases.
Now, as for the federal aide, the only way this scheme I mentioned below would be stupid is if (a) I screw up and don't pay it before it starts charging interest, or (b) an origination fee is charged either when the loan is received or when it's payable, or (c)  there is a penalty charge for paying it off early.
I'll have to ask the law school about those.

Anyone else know these answers or have better ideas or anything?

[angmill08]

I don't know about the CC thing, but that might be a good idea as long as you check all the fine print about interest, points, etc.

Many people throw out the idea of using Stafford loans for short term investments. But on my Stafford loan app (and I assume yours too) there is a line about how this money can only be used for school tuition and related expenses. It's one of the conditions of the loan, I believe. So I think it would be dishonest to take out those loans only to use the money for a short term investment.

[whoisjohngalt]

I don't know about the CC thing, but that might be a good idea as long as you check all the fine print about interest, points, etc.

Many people throw out the idea of using Stafford loans for short term investments. But on my Stafford loan app (and I assume yours too) there is a line about how this money can only be used for school tuition and related expenses. It's one of the conditions of the loan, I believe. So I think it would be dishonest to take out those loans only to use the money for a short term investment.

I haven't seen that, but that's what I was referring to above when I said I thought the gov't had cleaned this up in some way.

[mobo]

i don't know for sure, and maybe i didn't read your post closely enough, but i thought that schools won't accept cc's to pay their bills? that would mean a cc cash withdrawal, and your cash withdrawal terms may not make that worthwhile...

[missliad]

At our school all federal financial aid is applied to tuition first before any remaining funds are disbursed to students...at least this was the case in undergrad, so I'm not totally sure if the process changes for law school.

[check01]

Regarding the credit card: generally a school that takes credit card payments will take any financial aid money and credit it back to the card, which would make you lose the points. If you could pay your tuition at least 60 days before your aid arrives that wouldn't happen, but then you'd be paying interest. Besides, most schools don't post your balance until they know they're within that 60 day window (to avoid paying fees to the CC company).

Regarding investing the money:  Given that this year the unsubsidized Stafford loans will be accumulating interest at 6.8% while you're in school, it would be utterly stupid to use any student loan money for investment purposes.  If you have a safe investment that can guarantee a return higher than that, screw law school and start a mutual fund.

If you really have enough money that you would consider investing your subsidized Stafford loans, the best thing you could do is use them to pay off your unsubsidized loans -- presuming you have no other debts with higher post-tax interest rates.