Taking out a student loan and investing the money?

[kipin]

I have heard that student loans are interest free until after you have graduated from college.

Does that mean if I were to apply for a loan, get accepted for say $5000/yr I could then take that $5000 and invest it into a high yield savings account or CD and earn around 5% interest and then when I graduate from school just pay back the loan and be sitting on an extra few grand from the interest?

Are there any downsides to doing this? Is it illegal? Anyone have any more info on my idea?

If my parents are classified as high income, would I not be able to qualify for a loan if I am still a dependent?

Thanks for any info I get.

[ItalianFX]

You won't make a few grand on $5000 at 5%.

[kipin]

The numbers were all made up. I don't know how much I would qualify for.

I have more than 1 year of school left so I could theoretically get the money 2 or 3 times.

The math is not important right now, just the idea... Will it work?

The way I see it is free money is free money. It would be fun to start some sort of retirement fund off the interest I earned off student loans.

[ItalianFX]

Usually the loans go right into your account so you'll never see it. I'm not exactly sure though.

But I guess I could see it working as long as the downside risk is practically 0.

[juschuma]

they might be interest free, but most of the time they interest is accruing, just payment is deferred until after graduation.

[FreakSex]

They're not interest-free unless they're Stafford SUBSIDIZED, of which I get about $2k-$3k/yr. I'm pretty positive you can't just take that money and use it.

Other loans accrue interest as well, at a rate far beyond you'll earn on ANY investment.

In short, you're better off playing poker with the money.

[Shoe]

On most student loans, the interest builds up while you are in college, you just don't need to start making payments until 6 months after you graduate. The exception to this is if your parent's do not make much money, then you can qualify for a subsidized loan or grant that is either free money or pays the interest for you.

That being said, I wish i would have taken out loans and put that money in my roth each year instead of waiting until after college to start my roth.

[yellowbastard]

Apply this same concept to credit cards that offer 0% intro. rates and you can leverage way more than $5000 per year for free if your credit is good. Read about it here

[Cubswin]

It is illegal but this has not stopped people from doing it. As another poster pointed out, only subsidized loans would be worth chasing. When I was in school this was capped at $8500 per year. In most cases the check is cut right to the school so your SOL. I went to an overseas school and the check was written out to me but i actually spent it on tuition. If you can get over the hurdle of having the check cut the school 5% of $8500 will earn your $425 per year less your tax liability. Again, this is illegal and frankly would not find it worth my time.

[wax42]

I don't think it should matter if the money is sent directly to the school. You were going to pay your tuition anyway, so take the extra money you'll now have left over (due to the loan) and invest that. It's the same thing.