Taking out a student loan to invest
Question: I totally agree, paying 6% to receive 4% is lost money…but perhaps I havn’t clarified what I am proposing. Assuming this loan allows me to invest money I have already saved. So taking the loan and putting it into a savings account yields me 4% on this money and allows me to invest the money I have already saved up. So in reality, this loan is only costing me 2% yet gives me the ability to invest whatever money I had previously saved because it is no longer needed for expenses. I am very confident I can meet the break even return of 2% and anything over that is pure profit.
Answer: You say you are a finance major.
So you can see, therefore, that it is irrelevant whether you borrow and invest the money, or borrow, and invest other money? (only difference, in the former case, you *may* be able to deduct the interest from taxable income).
The outcome is entirely dependent on the gap between your after tax borrowing rate and your after tax investment return.
Since you are a finance major, you know that to get inv return borrowing rate, it is almost certain you will have to take on more risk.
There really is no free lunch. The first thing they teach you in finance101.
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