# Student Loans question **URL:** \ **Category:** Factual Questions\ **Created:** [June 27, 2007, 5:00pm UTC](https://boards.straightdope.com/t/student-loans-question/409652 "2007-06-27T17:00:20Z")\ **Posts on this page:** 13\ **Page:** 1
**Author:** ![Psycho\_Originals](https://avatars.discourse-cdn.com/v4/letter/p/d26b3c/32.png) [@Psycho\_Originals](https://boards.straightdope.com/u/Psycho_Originals)\ **Post date:** [June 27, 2007, 5:00pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/1 "2007-06-27T17:00:20Z")
I’m going to be going to college this fall, to a trade school for filmmaking. All my life i have saved very well and have just about my entire tuition paid for (25K) The only thing i need to worry about would be living expenses then, which i should have no problem with since i have roommates and a job set up already. I was searching around recently and came upon a student loan, a special that was “$20,000 for $111/month.” My question is, is it alright if i take out that loan and reinvest it, say, in the stock market or CDs at the bank? I guess this question applies to any loan, can you take out a mortgage and use it for something other than a house? Provided you have collateral to cover it. ---
**Author:** ![pendgwen](https://avatars.discourse-cdn.com/v4/letter/p/3da27b/32.png) [@pendgwen](https://boards.straightdope.com/u/pendgwen)\ **Post date:** [June 27, 2007, 7:22pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/2 "2007-06-27T19:22:51Z")
I can’t tell you about private loans but my government sponsored student loans specify that they must be used for education and living expenses. ---
**Author:** ![LilShieste](https://avatars.discourse-cdn.com/v4/letter/l/9f8e36/32.png) [@LilShieste](https://boards.straightdope.com/u/LilShieste)\ **Post date:** [June 27, 2007, 7:39pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/3 "2007-06-27T19:39:12Z")
[QUOTE=Psycho Originals] I’m going to be going to college this fall, to a trade school for filmmaking. All my life i have saved very well and have just about my entire tuition paid for (25K) The only thing i need to worry about would be living expenses then, which i should have no problem with since i have roommates and a job set up already. I was searching around recently and came upon a student loan, a special that was “$20,000 for $111/month.” My question is, is it alright if i take out that loan and reinvest it, say, in the stock market or CDs at the bank? I guess this question applies to any loan, can you take out a mortgage and use it for something other than a house? Provided you have collateral to cover it. [/QUOTE] IANAL, so I can’t speak to the legality of this, but I think that once you receive a loan you can use it on whatever you wish. That being said, a lot of loans are granted based on need and financial hardships, so it could probably be argued that your “need” for a loan like this isn’t very high. I racked up a lot of student loans when I was getting my B.S., and I don’t recall ever being in possession of an actual, written check. The whole process was closely coordinated with the Financial Assistance department on campus, so the loan most likely went directly to their office. So, depending on how the loan is set up, you might not even get an opportunity to use the loan on something other than schooling. LilShieste ---
**Author:** ![oboelady](https://avatars.discourse-cdn.com/v4/letter/o/8491ac/32.png) [@oboelady](https://boards.straightdope.com/u/oboelady)\ **Post date:** [June 27, 2007, 8:02pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/4 "2007-06-27T20:02:40Z")
[QUOTE=Psycho Originals] I’m going to be going to college this fall, to a trade school for filmmaking. All my life i have saved very well and have just about my entire tuition paid for (25K) The only thing i need to worry about would be living expenses then, which i should have no problem with since i have roommates and a job set up already. I was searching around recently and came upon a student loan, a special that was “$20,000 for $111/month.” My question is, is it alright if i take out that loan and reinvest it, say, in the stock market or CDs at the bank? I guess this question applies to any loan, can you take out a mortgage and use it for something other than a house? Provided you have collateral to cover it. [/QUOTE] Can’t you just keep the 25k you have saved, take out the loan and use it for its intended purpose (pay the tuition), and invest your own money? Or, have you already paid the tuition? ---
**Author:** ![Spezza](https://avatars.discourse-cdn.com/v4/letter/s/a698b9/32.png) [@Spezza](https://boards.straightdope.com/u/Spezza)\ **Post date:** [June 28, 2007, 1:56am UTC](https://boards.straightdope.com/t/student-loans-question/409652/5 "2007-06-28T01:56:20Z")
[QUOTE=oboelady] Can’t you just keep the 25k you have saved, take out the loan and use it for its intended purpose (pay the tuition), and invest your own money? [/QUOTE] This is a much better idea than investing borrowed money. ---
**Author:** ![Psycho\_Originals](https://avatars.discourse-cdn.com/v4/letter/p/d26b3c/32.png) [@Psycho\_Originals](https://boards.straightdope.com/u/Psycho_Originals)\ **Post date:** [June 28, 2007, 3:18am UTC](https://boards.straightdope.com/t/student-loans-question/409652/6 "2007-06-28T03:18:26Z")
Yes, i could do that, and thats probably what i will do, I’d rather not move 25K out of a 5% CD. I guess the main point of the question was to see if loans need to be used for specific things, or if when you secure the loan the money is yours to do whatever with. ---
**Author:** ![Kneepants\_Erasmus\_the\_Humanist](https://avatars.discourse-cdn.com/v4/letter/k/54ee81/32.png) [@Kneepants\_Erasmus\_the\_Humanist](https://boards.straightdope.com/u/Kneepants_Erasmus_the_Humanist)\ **Post date:** [June 28, 2007, 4:15am UTC](https://boards.straightdope.com/t/student-loans-question/409652/7 "2007-06-28T04:15:02Z")
well, you are “supposed” to use your loan for educational expenses, but they will end up sending you the excess and how can they know what you do with it? ---
**Author:** ![Harriet\_the\_Spry](https://avatars.discourse-cdn.com/v4/letter/h/e56c9b/32.png) [@Harriet\_the\_Spry](https://boards.straightdope.com/u/Harriet_the_Spry)\ **Post date:** [June 28, 2007, 3:27pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/8 "2007-06-28T15:27:33Z")
There are the federal student loan programs, where payments are deferred until after you are out of school and interest rates are generally lower. These require you to fill out forms (FAFSA) and meet eligibility requirements. IME you won’t be getting $20,000 per year out of those unless you really demonstrate significant need. Federal need-based student loans don’t sound like what you’re looking at with $20,000 at $111 per month, since that sounds like you start repayment immediately at $111 per month. Does the math of the interest you’re paying, the investment return, and the investment risk really make this all that appealing? ---
**Author:** ![billyb0b](https://avatars.discourse-cdn.com/v4/letter/b/7ea924/32.png) [@billyb0b](https://boards.straightdope.com/u/billyb0b)\ **Post date:** [June 28, 2007, 5:18pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/9 "2007-06-28T17:18:07Z")
What percentage rate is that loan at? Have you run the numbers to compare the cost to the invesment benefits of the 5% CD? I bet you will lose big time if you take the loan. BTW, the loan contract would tell you the answer to your OP. ---
**Author:** ![Psycho\_Originals](https://avatars.discourse-cdn.com/v4/letter/p/d26b3c/32.png) [@Psycho\_Originals](https://boards.straightdope.com/u/Psycho_Originals)\ **Post date:** [June 28, 2007, 5:29pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/10 "2007-06-28T17:29:10Z")
I think its around 6%. I had it figured that i would be making about the same in the CD every month to cover the loan cost. ---
**Author:** ![Tim\_T-Bonham.net](https://avatars.discourse-cdn.com/v4/letter/t/46a35a/32.png) [@Tim\_T-Bonham.net](https://boards.straightdope.com/u/Tim_T-Bonham.net)\ **Post date:** [June 29, 2007, 9:30am UTC](https://boards.straightdope.com/t/student-loans-question/409652/11 "2007-06-29T09:30:34Z")
My sister did this: took out a government-guaranteed student loan at about 3%, invested it directly in a CD at about 7%, and used her savings to pay for college. So it is certainly possible. And this was suggested, and arranged by a friend who was VP of the bank, so it’s probably at least semi-legal. Note that these are unsecured loans. In secured loans, like a mortgage or an auto loan, the loan is secured by a claim against the property purchased. If you took out the loan but did NOT purchase the property, that would probably constitute fraud. You obtained a lower interest rate by claiming that this property was there to back up the loan, when you did not actually buy that property. That would be fraud. ---
**Author:** ![Monty](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/monty/32/47_2.png) [@Monty](https://boards.straightdope.com/u/Monty)\ **Post date:** [June 29, 2007, 9:39am UTC](https://boards.straightdope.com/t/student-loans-question/409652/12 "2007-06-29T09:39:23Z")
Your school may be one, such as my university, where the student loan goes directly from the government to the school. ---
**Author:** ![easy\_e](https://avatars.discourse-cdn.com/v4/letter/e/eb8c5e/32.png) [@easy\_e](https://boards.straightdope.com/u/easy_e)\ **Post date:** [June 30, 2007, 7:04pm UTC](https://boards.straightdope.com/t/student-loans-question/409652/13 "2007-06-30T19:04:42Z")
My student loans were dispersed directly to my school. However, I qualified for loans in excess of my tuition. My school then cut me a check for the amount leftover. Which I then used for expenses like books and housing.