The Legal Position on Investing My Student Loan Money

Last updated on February 20, 2019

The purpose of disbursing student loans is to help students take care of their educational costs, especially for college-level education. The loans may be from either the government or private lenders. Some students may find themselves with some excess money after paying for their various educational expenses, and choose to invest that money instead of refunding it to the lender. Some students may actually try to squeeze their budgets to save money to invest in some ventures that can offer them impressive returns. The motivation behind such decisions may be to get some returns that could actually go into repaying the loans and other debt.

The legality of investing student loans

There is no explicit statement proclaiming that the investment of student loans is illegal. However, the principal consideration when it comes to this matter is the type of loan that you took out. In the case of federal loans (from the Department of Education), there are stringent regulations concerning their utilization. For private loans, the restrictions are less strict at the expense of higher interest rates.

The government subsidizes federal student loans so that they are cheaper with the hope of fostering a college-educated population. If you invest your federal student loans, you may not be committing a crime, but the Department of Education could choose to take legal action against you if they find out, resulting in several possible outcomes, including repaying the subsidized interest.

The biggest risk

Other than facing potential legal suits, the biggest risk you may face for investing student loans is failing to make a gain on your investment before the repayment due after you graduate.

If you default repaying your student loans, you risk hurting your credit score and jeopardizing your chances of getting other credit, like an auto loan, mortgage, or personal loans. Having a good score is crucial, so you should be careful not to hurt it. However, all is not lost, as you can engage professionals like Boostcredit101 to help you improve your score by using trade lines. Additionally, they can advise you accordingly on strengthening this important rating. Also, they offer additional services on top of repairing credit scores that have been damaged by student loan repayment issues.

The better idea

If you want to invest your student loans with lower chances of possible legal action, you should avoid doing so with government-subsidized loans. Also, it would be prudent to avoid investing the full amount of refunded student loans due to the high risk involved. It is better to be a conservative investor and only invest the portion allotted for general living expenses. Although such an idea still has some issues, you would have lower chances of being in violation of student loan contractual terms because living expenses are hard to define, and the terms hardly identify rigid examples of such uses.

Final thoughts

You should avoid investing your student loans, especially the federal ones, since you risk losing the investment if the market becomes unfavorable. Due to this, you may be unable to repay the loan when it is due, thus lowering your credit score. Also, you may face possible legal action if you were to be discovered by the Department of Education.


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