Student Loans and appropriate use?

VThornheart

Another thread got me thinking about student loans again... since you guys in the forum know more than I about the economic/legal aspects of these kinds of things, I figured I'd ask you.

My wife's still going to college, and she hasn't been taking out any student loans. I, however, have a pretty large amount of student loans (which accumulated partly due to me not having a job that could pay the bills while I was in college, and partly because when I transferred from Keene State to Sacramento State I lost almost all my credits and had to do ~2 years worth of school over again).

We have a car loan that we're paying ~6% interest on. I think I could likely get half that interest rate if the money was instead on a subsidized student loan... and I could also put the rest into a Roth IRA as was mentioned in the other thread. And it'd also be nice because I think they suckered me pretty well when I bought that car (as I think I discussed in another thread), so I'm paying a pretty high monthly rate (not unmanageable, but decisively higher than if I transferred it into a student loans' 10 year payment).

But... is it legal to do so (to use a student loan to consolidate other loans)? I'm not interested in doing it if it's illegal... but if it's legal, I'm game for it. Also, is it a wise move? It seems so to me on the surface... but there may be factors I'm not considering.

The situation:

Current student loan outstanding: ~30k (@ 2.5% if I remember correctly)
Remaining car loan: ~10k (@6%... maybe 6.5%, I'll have to check)

King Kong

If you used it to make each monthly payment that is within reasonable use to my understanding ( I use mine to pay rent, utlilties, gas, car payment etc) So I don't see why you couldn't do what you intend with it.

archonwarp

I've known a few people who have done it, and they all say it's a great idea. Your interest rate is basically set in stone, and they're much more flexible about repayment options. Most of the loans actually state that they can be used for anything school related, including transportation and food, so you should be completely within the bounds of the law.

VThornheart

But like, what if we used it to go and plop down some/all of the remaining car payment, i.e. not just to pay individual monthly payments as they came in? Would that constitute unfair/illegal use?

(in one semester, I think you can only get up to 5k subsidized if I remember correctly... but within 2 semesters, we could pay for the whole loan)

EDIT: Ahh, archonwarp just brought up a good point... it WOULD be a transportation-related use.

Thanatos

Housing can also generally be considered "school-related."

Really, you use the loan money first to pay for all of your "education-related" expenses, then your other money to pay for everything else. What's the difference between using the loan money for other stuff, and using the other money saved by the loan money for other stuff? Really, nothing.

Make sure you check on the terms of your loan before doing it, but yeah, you shouldn't have any problem. It's also worth noting that interest on your student loans is tax-deductible, while interest on your car loan is not.

VThornheart

Well, the thing is, because she goes to community college our literal "school expenses" are almost zero... I think she pays something like 100 bucks a semester for classes, another 200 or so for books and supplies... and then she's in the clear.

But in general, we won't be hauled away to jail for doing something like this... that's good news! I'll have her apply for student loans then... it's decisively a better deal it sounds like. But I'll check the terms first, just in case.

Sky

http://www.youtube.com/watch?v=UHO9FvAEA3A

Thanatos

Sky wrote: »

http://www.youtube.com/watch?v=UHO9FvAEA3A

This is a really great way to be forced to put off college for 2-3 years because of a deployment in Iraq.

Facebook is not going to get you into college.

VThornheart

Thanatos For Real wrote: »

Sky wrote: »

http://www.youtube.com/watch?v=UHO9FvAEA3A

This is a really great way to be forced to put off college for 2-3 years because of a deployment in Iraq.

Facebook is not going to get you into college.

Aye, I would definitely not take up that offer personally.