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  1. #1
    SitePoint Wizard CLKeenan's Avatar
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    Need advice regarding college loans and business funding

    Here's my situation;

    I am going to be a sophomore in college this fall. Currently, I am paying for my private college tuition from my website earnings. I pay it on a montly payment plan so I always have enough money to cover an emergency. I am not using any loans right now.

    What I'm thinking though is why not take out a federal stafford or perkins loan (no payments while in school) and then just keep the money I make and put it in a high interest CD or fund (thats another topic for another time) while in school and then just pay off my college loans as soon as I'm done so I don't get hit with any college loan interest fees? Does that sense?

    This would also allow me to also reinvest in my business to help it grow because currently I do not have much flexibility within my budget because tuition, room and board, and self employment taxes take a huge chunk out of my earnings.

    Any feedback would be greatly appreciated!
    -Chris

  2. #2
    SitePoint Wizard Lil_Red's Avatar
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    I'd avoid the loans unless you need to establish credit but I'm also opposed to going into debt unless there is other way of doing something.

    Your plan sounds good right now but your situation could be much different in 3 years and you may not be in a situation to payoff the loans right away.

  3. #3
    Non-Member demosfen's Avatar
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    Definitely go for it, an interest-free loan when inflation is around 8% is nothing short of free money. I've been thinking of applying for a few of those '0% APR until July 2007' credit card offers myself.
    I wouldn't invest in CD (valued in $) though, when inflation is high it's a good idea to invest in something that doesn't depend on dollar, commodities for example.

  4. #4
    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by demosfen
    Definitely go for it, an interest-free loan when inflation is around 8% is nothing short of free money. I've been thinking of applying for a few of those '0% APR until July 2007' credit card offers myself.
    I wouldn't invest in CD (valued in $) though, when inflation is high it's a good idea to invest in something that doesn't depend on dollar, commodities for example.
    What country do you live in with an 8% inflation rate?

    CLKeenan is in the US, where it's around 3%.

  5. #5
    SitePoint Wizard Lil_Red's Avatar
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    Quote Originally Posted by tke71709
    What country do you live in with an 8% inflation rate?

    CLKeenan is in the US, where it's around 3%.
    I was wondering that myself.

  6. #6
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Don't go into debt if you don't have to. Instead, focus on raising revenue. You have plenty of time to reach your goals. Why burden yourself with debt? Lil_Red is correct that your circumstances could change and you might regret going into debt.
    The fewer our wants, the nearer we resemble the gods. Socrates

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  7. #7
    Non-Member demosfen's Avatar
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    I am going to skip inflation because it's irrelevant to this thread.
    The math is very very simple. Let's assume that you take a $5000 interest-free loan, put it in CD that earns 4% a year, and don't have to repay it for 3 years. In 3 years, you'll have $5624.32. After paying off your loan you have $624.32 that you wouldn't have otherwise (assuming the bank didn't go out of business and FDIC system didn't collapse)

  8. #8
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    You are forgetting tax, the fact that the OP is a college student who may not be accustomed to managing finances, and (as usual) what is best for the individual as opposed to the allmighty dollar.

    Life isn't just about money.
    The fewer our wants, the nearer we resemble the gods. Socrates

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  9. #9
    Non-Member demosfen's Avatar
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    Quote Originally Posted by Sagewing
    You are forgetting tax
    I am not, I mentioned CD as an example. Tax avoidance is illegal in opinion of some SP moderators. Otherwise I could suggest something better than CD's

    OP is a college student who may not be accustomed to managing finances
    A college student could use extra $600+ whether or not he is accustomed to managing finances. In fact, especially if he is not accustomed to managing finances.

    Life isn't just about money.
    Agreed.

  10. #10
    Non-Member Gator99's Avatar
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    Back when I was in college, loans were need-based. Which means you basically have to be poor to get a government student loan (thanks to Reaganomics). So if you (or your parents, if they claim you on their taxes) are making a decent income, chances are you won't qualify for aid. However, if you can qualify, and need capitol for your business, that's about as cheap as you'd be able to get money at this point.

  11. #11
    SitePoint Guru El Camino's Avatar
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    Don't you have to declare income and assets to get a loan? In the 2nd year wouldn't you have to declare 1st year income and that you had the CD?

  12. #12
    SitePoint Wizard Lil_Red's Avatar
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    Quote Originally Posted by Sagewing
    Don't go into debt if you don't have to. Instead, focus on raising revenue. You have plenty of time to reach your goals. Why burden yourself with debt? Lil_Red is correct that your circumstances could change and you might regret going into debt.
    Excellent advice!

  13. #13
    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by El Camino
    Don't you have to declare income and assets to get a loan? In the 2nd year wouldn't you have to declare 1st year income and that you had the CD?
    Exactly, that's the big missing link in CL's train of thought.

    I doubt they just give everyone a loan regardless of income. He has income coming in that he has to declare that will most likely mean that he won't qualify for a loan.

  14. #14
    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by demosfen
    I am going to skip inflation because it's irrelevant to this thread.
    LOL, then why did you bring it up?

    The math is very very simple. Let's assume that you take a $5000 interest-free loan, put it in CD that earns 4% a year, and don't have to repay it for 3 years. In 3 years, you'll have $5624.32. After paying off your loan you have $624.32 that you wouldn't have otherwise (assuming the bank didn't go out of business and FDIC system didn't collapse)
    The math is simple because you exclude a ton of important factors.

    Let's take a look at this...

    Take a $5000 investment in a CD that earns 4% a year and in three years you have 5624.32 is your statement.

    Now let's involve a little reality.

    $5000 investment at 4% a year = $5624.32 (TRUE)

    Pay 20% taxes on your $624.32 profit so 624.32 - 124.86 = $499.46 net profit

    Factor in inflation at 3% a year so it takes $5463.64 to equal $5000 three years ago.

    So you're looking at $5499.46 - $5463.64 = $35.83 in real dollar gains for investing 5k for 3 years. If you only pay 10% taxes then you make almost a 100 dollars, wheeeeeeee.

    Worth it? Not really.

  15. #15
    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by demosfen
    Tax avoidance is illegal in opinion of some SP moderators.
    Just for the record, tax avoidance by definition is never illegal.

    Tax evasion on the other hand is.

  16. #16
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    That's good, because I spend many hours and thousands of dollars avoiding taxes each year!!! Indi 401k, HSA, onshore/offshore corps, and an expensive accountant! Worth every penny
    The fewer our wants, the nearer we resemble the gods. Socrates

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  17. #17
    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by Sagewing
    That's good, because I spend many hours and thousands of dollars avoiding taxes each year!!! Indi 401k, HSA, onshore/offshore corps, and an expensive accountant! Worth every penny
    Don't we all?

  18. #18
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Oh I wish everyone did! I can't tell you how many clients I have who totally ignore my advice about tax avoidance (I'm no CPA, but I know the basics and try to push people to look into this kind of thing).

    For example, almost every day I hear something like, "I can't afford an HSA, I might get sick!". Tragic!
    The fewer our wants, the nearer we resemble the gods. Socrates

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  19. #19
    SitePoint Wizard Lil_Red's Avatar
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    Quote Originally Posted by Sagewing
    Oh I wish everyone did! I can't tell you how many clients I have who totally ignore my advice about tax avoidance (I'm no CPA, but I know the basics and try to push people to look into this kind of thing).

    For example, almost every day I hear something like, "I can't afford an HSA, I might get sick!". Tragic!
    I wish they would make obtaining an HSA easier. I can see why people give up on HSAs with all the hoops you need to go through to get started.

  20. #20
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Really? It seems kind of easy to me. The biggest obstacle seems to be people who aren't qualified because of other coverage, but if you qualify it's just like starting any other health insurance. What kind of hoops are referring to?
    The fewer our wants, the nearer we resemble the gods. Socrates

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  21. #21
    chown linux:users\ /world Hartmann's Avatar
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    Back on topic. Being a recent grad, I have some experience with the Stafford loans and the Parent Plus Loans. I am not sure that what you are suggesting is even possible. The fact that you are able to pay for school means that your loans will accrue interest, even while you are in school. Depending on the loan and the amount of time you keep it for your interest could be upwards of $1,000, which must have payments started 6 months after your graduation time frame unless you get a deferment.

    I would suggest talking to your on campus loan/student business services person and seeing what they have to say.


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