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Should I Use My Student Loan Money for Useless/Fun Stuff or Buy a House Out of Foreclosure?

As a college student, you have a tremendous opportunity to secure low-interest cash infusions. Most other people could only dream of having access to the wealth of high-quality, low-interest funding that students can tap. As the number and type of available student loans has grown in recent years, so too have the opportunities for young people to finance their own destinies. If you're smart about the loans that you procure, you could leave school with minimal amounts of debt and a wide-open future ahead of you.

On the other hand, you could graduate from college with a debt burden that's worth tens of thousands of dollars. Worse, you could experience sudden, massive rate increases thanks to clauses in your loans that provide for such abuse. It's not uncommon for the interest rates on student loans to spike by 10 percent or more in the post-graduation period. Although most lenders impose some upper limits on the rates to which their loans can "adjust," this is cold comfort to the millions of students who struggle with crushing debt loads. After all, the difference between an interest rate of 15 percent and an interest rate of 10 percent is largely academic for a cash-poor post-graduate.

It's clear that student loans are powerful tools that must be used judiciously. If you're able to secure an ample credit facility that leaves you with a significant amount of money after accounting for your tuition bills, you may be tempted to spend it on frivolous activities. While this might be gratifying, it may not be a prudent long-term course of action. After all, you'll need to pay back all of the money that you've borrowed.

From a financial perspective, it might make sense to invest your surplus student loan funds. Since you'll need to pay them back with interest, it would be in your best interest to lower their effective interest rates. If you make a particularly smart investment, you might even be able to "invert" your loans' interest rates and begin earning money on their balances.

It's not advisable to use student loan funds to invest in stocks or other equities. The market is simply too risky and volatile to make such a course of action worthwhile. On the other hand, you may wish to purchase a home out of foreclosure and start earning some regular rent income. As an added bonus, you can live in the home during the remainder of your time in college.


This article contains general legal information but does not constitute professional legal advice for your particular situation. The Law Dictionary is not a law firm, and this page does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.