Financial Aid--The Con!

Let me preface this post by saying that I have never tried the scheme described below. I'm not any sort of financial planner or advisor, and I don't assume any responsibility for you screwing up your own finances.

Wow, my first attempt at a disclaimer.

Okay, now a little background.... A couple of days ago, I got an e-mail from a former labmate who graduated a few months ago. He told me that he just got his financial aid from grad school paid off, and that he managed to make about $700. Here's how:

My friend took all the financial aid he could get his hands on that only accrued interest or required re-payment after graduation. Each semester, he would get a check, and each semester he would put it straight into a CD at the credit union. He lived (frugally) on his grad school stipend alone, and never spent a cent of those loans. So, they accumulated interest for him over the 6 years he was in grad school. When he graduated, he paid off the loans in full, and kept the interest that he'd been earning on that loaned money.

It sounds a little bit like a plan that's a little too good to be true, and if my friend hadn't pulled it off, then I would agree with that opinion. Success comes down to two things:

1. Read the small print. You have to make sure that you fully understand the terms on the loans, and they they aren't racking up interest until after you leave school. If they're accumulating interest, then you'll probably lose (unless your credit union is giving you a much higher rate than you're being charged for it).
2. Self discipline. You have to guard that money and avoid the temptation to spend it. If you can't trust yourself with this, then don't even think about doing this.

I've had other friends who used student loans as down payments on houses, or for home upgrades/repairs. So, they can be useful in other ways, if you just look at them as a low interest loan.

I guess you also have to figure in that Uncle Sam is going to take his cut of your interest earned. My friend will probably end up making around $500. Spread over 6 years, that's not very much money, but considering it took little effort to do, it's not so bad. I think that most graduates would be happy to have $500 waiting for them at graduation.