Critical Investing Decisions

I am starting graduate school fall 2007 and I am trying to come up with the best way to pay for my education. I appreciate any advice on my situation. Here is my dilemma...I have $24,000 that I could use for school right away and avoid federal loans. Or I could invest that money now and instead use federal dollars to pay for school at a fixed rate of 6.8% when I finish school. I was thinking that if I can find an investment opportunity that will pay better then 6.8% in two years then I would be better off going with the loans and then paying them off in a lump sum at the end of school to avoid paying interest.

[Ima saver]

It is going to be very difficult to find anything safe paying as much as 6.8%. I would use the $24,000 to pay for school now.

[cptacek]

If you can get the money for school with a loan you don't pay interest on until 6 months after you are out of school, then I would get the loans, put the money in a high rate savings account, and pay it all off 5 months and two weeks after you are done with school.

If you have to pay interest on the money starting the day you sign the loan papers, just pay for school with cash. OR pay it with a credit card that gives you rewards and then pay the credit card off immediately (you get the reward and you get no interest).

[project15]

Hopefully the market doesn't keep going down and you don't lost your education money

[scfr]

It is going to be very difficult to find anything safe paying as much as 6.8%. I would use the $24,000 to pay for school now.

I agree w/ Ima saver. You won't be able to find anything that is guaranteed to pay over 6.8%. I'd hold back a couple thousand to pay for any unexpected expenses, and use the rest to pay for school.

[disneysteve]

Would the interest on the student loan be tax deductible? That could change the answer to the question.

Also, what would the payment schedule be? Do you have to pay the full amount upfront, or do you pay each semester? Couldn't you make the initial payment and keep the rest invested earning interest and draw from it as needed?

[Scanner]

If the loans are subsidized, I'd hold onto the money but I'd have to go with a moderate to conservative investment, maybe half of it a high interest savings account and the other half a zero coupon bond fund or balanced fund leaning mostly bonds.

[terri77]

Are you sure that rate is fixed? I know it's 6.8% now, but I think it can flucuate unless you consolidate.

[trainedmonkey]

Personally I'd find a company to go to work for that would pay for my continuing education and park 1/3 the money in a balanced fund and the other 1/3 in a good bond fund and 1/3 in a high yield money market.

If you have a good credit history already established you might take 1/2 the money to use to pay for school and expenses and the other 1/2 invest in a money market for emergencies and take out a loan.

I would think you could consolidate after graduation and if I'm not mistaken if the loan is substidized you can take a tax deduction on the interest.

Personally if I had 24,000 dollars to invest or spend, I'd take the loan and invest the cash. When the loan comes due you have 2 options, pay it off or pay over time. 6.8 percent with potential tax deduction is not a bad rate and it also aids in the establishment of a good credit history (you do plan to pay the loan off don't you?)

I'd personally feel that this would qualify as good debt, in my opinion. Cheap money, possible tax deduction, deferred repayment, establish good credit.

I wouldn't pay on this loan for 10yrs or whatever the option is now but I would let it sit out there until you have to start making payments.

[fake_usa]

pay it off before they charge you interest on it.

[kimiko]

Bush is going to sign a bill that would boost grant funding and slash subsidies to student loan firms, which mean these firms will be in a bind and that can only translate to rate going up.

[eisor]

I agree with cptacek.

Most student loans don't require you to pay until after you graduate. May as well let the money earn interest for 4 years.

[boefixepa]

I know when I was filling out loan papers there was no way I would have quilified for a subsidized loan with $24,000 sitting around.....

Do both. You pay by semester, plan accordingly and invest is safe funds. You will no make a bank load, but you will make some and still have enough to pay your tuition each semester.

[zetta]

Is the graduate program 2 years long? The place to park cash for that length of time is either a CD or a money market fund. I think you can get about 5% on these right now. With the CD you won't be tempted to spend it.

If the loan starts accruing interest from day 1, park the money in six-month and 1-year CD's and pay by the semester.

If the loan doesn't accrue interest until later, park the money in a 2-year CD and pay the loan off when the interest starts.