How to Profit from Student Loans

Today we’re talking about how to make a profit with your student loans. Student loans are a helpful way for families who can’t afford the college’s entire bill to cover the gap between that and what they can afford. Certainly, we don’t want to burden our students with too much debt and have them graduate college up to their eyeballs, making it harder to make the transition into adult life. That said, for families who do have the money and feel like, well, we don’t need to take out loans, so we’re not going to do that, there may be a benefit.

If you have investments right now that you’re planning to liquidate to pay your student’s college bill, whether that’s stocks in the market, CDs, or even crypto (of course, investment carries the risk of loss, consult a financial planning professional), and if your investment is appreciating at a higher rate than the loan you’re being offered, whether that’s the direct student loan at 6.53% this year, or the NJ Class loan starting at 5.99% for New Jersey families, or even the Direct Plus loan for 9.08% this year (all of these are federal and state loans, there are also private loans available that may have lower, more competitive rates), but if your investment is appreciating at a better rate than that, you can beat the rate.

Imagine you have a 7% growth on your investment, which is the average growth over decades of the stock market. Then you take out a loan for, let’s say, 5%. Well, now you’re making a 2% profit on the difference between your investment and what it costs you to take out that loan. So you can leave your investment where it is, and when the bill comes due for the student loan, you can pay it off with cheaper dollars.

Of course, this is not for everyone, but for families who can afford it, I want this information to be out there. So look into it, and if you have questions, call us at 732-556-8220. We are here to help.