Saving (or Even Making) Money Using Student Loans

Here are some GREAT ways for you to manage your student loans. I was told about one of these simple-yet-powerful financial strategies when I began my information freshman year and I was able to save a decent nest egg once I graduated. Currently, I'm using another financial strategy to mitigate the unsubsidized loans I am accumulating during my time in grad school.

First, allow me to explain the difference between subsidized and unsubsidized loans. The difference is important could cost you a good bit of money if you choose one over the other. Subsidized loans are typically loans where the government pays for the interest until you graduate. Unsubsidized loans, however, stick you with the interest as soon as you get them, regardless of whether you are in school or not. Clearly the Subsidized loans are more favorable, but are limited in the amount you can qualify for.

So now that we have that out of the way, here are my student loan financial strategies:

Strategy 1: NOTE: This only works for SUBSIDIZED loans that are in interest-free deferment until you graduate. What I did was accept the maximum amount of subsidized student loans regardless of whether I needed them or not. I did NOT take any unsubsidized student loans. Once I paid for tuition, books, rent, and all of my other school expenses, I was left with a good amount of subsidized student loans left.

Now, most people will see this excess of cash as spending money. Whoo! I won't have to pay this back for X amount of years! I could really use some new kicks, maybe even buy that nice HDTV I was looking at. Others may see it as a down payment for a new ride or look to pay off their old one (actually a decent strategy provided the interest rate on the student loan is less than the car loan). However, the truly disciplined and bright students will take this extra cash and put it in a long-term CD or Money Market account.

These savings accounts have two advantages: 1) the government is paying your student loan interest while YOU are making interest and 2) with CDs and MMA's no risk is incurred on your part. If you feel you may need the loans in case of emergency, deposit the funds in an MMA account. If you don't mind putting the money away until you graduate and want to earn even more interest, put your money in a CD. Either way you're making money!

Me, wanting to earn as much as I could, chose the CD. Once I graduated, I waited until the 6-month grace period was over, and paid all of my student loans back. The interest I gained (minus taxes) was mine to keep.

Strategy 2: Now that my tuition expenses are higher and I have to accept unsubsidized loans to cover the cost, I have to forfeit Strategy 1. Fortunately, my employer is providing me tuition assistance of up to $5000 a year. This provides me a great opportunity to pay off my unsubsidized student loans and save me tons in interest. What I do is take the maximum amount of subsidized loans and the minimum amount of unsubsidized loans. Once the semester is over and I receive my employer's tuition assistance, I immediately pay off all of my unsubsidized loans, therefore minimizing the amount of interest I will have to pay in the future. While this strategy isn't making me money like Strategy 1, it is surely saving me money in the long run.

Student loans aren't fun and unfortunately a necessary evil for most of us students out there. However you can use either of these strategies (or both) to make your financial burden a lot lighter.