Should I take out student loans to pay off my auto loan???

[Anonymous]

Reflect, I nearly flipped when I saw this question on here. I am contemplating doing the very same thing. Although, I am actually taking it a step further and paying off much higher interest credit cards, which will ultimately raise my credit score. Then after I do that, my credit score should be in the nearly perfect zone for refinancing my car loan for which I hope to bring down my interest rate from 10.25% to hopefully 6-8%, if I am lucky. I know the credit crunch is still stinging people trying to finance or refinance. If there is one thing I have learned from school, especially from all the finance classes I took recently, break everything down to terms, figure out and know your plan of attack, and the put it into action. I have been doing that for the past 2 years now and it has helped tremendously (not to mention the lawyer I got to help take care of some identity theft issues). I found out from the school I attend that you can do whatever you want with the extra funds from your student loans, as long as you do not invest it in the market. There is some kind of clause that states that you cannot take government money to invest it, or something of that nature. Honestly, I am not even thinking about investing right now, until I pay off all my outstanding credit accounts, anyway. When I finish school, I should have everything paid off except my car loan, but even that will be drastically widdled down to barely anything. The student loans can then be assessed on a income basis and probably be around that of a car payment itself.

[laz98]

wow, this thread really got some people going! 

i think you should totally do it.  i did it this semester.  paid off the last 1900 on our car, so we could save the $350 a month.

[Jazzzy]

School loans are normally governed by the school and related to school expenses. That doesn't mean that every dollar has to be spent on tuition, books, etc. Living expenses are taken into account.

I will be finishing grad school in May. I have utilized school loans for the last few years. I haven't needed those loans for school expenses. I had no intention of taking school loans, but I'm going into a profession (Nurse Practitioner) where my school loans may be paid back for me if I work in an underserved area...which pretty much surrounds where I live. My grown children convinced me I would be crazy to not take the school loans that were offered...even though I don't like owing money. It was a big stretch for me to do this at first.

I work part-time as an RN. What I have done is use the school loan money for some of my living expenses and then have my entire part-time salary go into retirement...Roths, 401k, etc. That way, I don't have to pay income taxes on my salary. Also, my employer matches a certain percentage. I'm over 50, so I can contribute a fair amount.

Is it OK to use school loan money to pay off an auto loan? Of course it is. It's OK to do what I did and add to my retirment because I had extra funds available. I may or may not have to ever pay those loans back.

Most of us are here because we've gotten smart with money. If a person accepts school loans, utilizing that money wisely is a good thing...not a bad thing.

[Anonymous]

Bad idea, if the student loans are generated through your college's financial aid office.  School loans are meant to be used for school expenses, and if a loan is part of the financial aid package derived by the Director of Financial Aid, using the money for expenses other than school expenses could result in rescinding of the loan funds, or a demand for immediate pay back.  Private student loans are available, based on credit, like the Parent PLUS loan and "uncertified" loans (that don't require proof of your enrollment in a half-time course load, at least) from some lenders, usually with variable interest rates.  If you want to pay for a car, that may be your best bet.  

[laz98]

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@Anonymous wrote:
Bad idea, if the student loans are generated through your college's financial aid office.  School loans are meant to be used for school expenses, and if a loan is part of the financial aid package derived by the Director of Financial Aid, using the money for expenses other than school expenses could result in rescinding of the loan funds, or a demand for immediate pay back.  Private student loans are available, based on credit, like the Parent PLUS loan and "uncertified" loans (that don't require proof of your enrollment in a half-time course load, at least) from some lenders, usually with variable interest rates.  If you want to pay for a car, that may be your best bet.  

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i agree, but unless the OP (or an enemy of his/hers) is giving the financial aid office a play-by-play of how the money was spent, i doubt they are going to look into it.  probably the majority of students take out student loans they don't "need."

[Anonymous]

As I posted previously, money if fungible and need is subjective.

I could choose to pay my car off with my existing funds and income.  This would leave me broke and financially tight.  I can then take out a loan to cover my school and living expenses.

My point is, that while the OP "COULD" possibly get by without the loan to go to school, this does not mean they have to get by in that manner.  And if they pay off their vehicle, who is to say which dollars are actually being used for that purpose....

Money comes down to a balance sheet, debits and credits.  OP has existing income, existing savings, existing credit.  They can leverage existing resources leaving themselves short for school and thus need to make up that difference with SL's.

Money is like water, it seeks to distribute itself evenly, not leaving high or low points.  While the OP question has raised eyebrows, the point is, as long as the balance sheet works and they are not making false statements, nor borrowing money they are not qualified for....then it is very much a judgement call and subjective in nature.

IMO  IMO  IMO 

[Anonymous]

I don't know if you have all of your information correct here....I myself was just in this situation, i just got married and my wife works for the university where I attend graduate school.  Now that we are married my tuition is paid for, but I applied for loans because she was actively looking for a new job, so i didnt want to be stuck in case she found one.  Well long story short, she stayed with her job at the university and my tuition was paid for, but when we came home from my honeymoon, the university mailed me a check for over $9000 for my student loans. I didn't request the check, my tuition was already paid, the university just mailed it to me, so i dont think it is going to be rescinded, living expenses are included in student loans so you can use them as you wish.

Being that I had just over $9000 in credit card debt, I came on this forum and asked whether i should pay off the debt, we are looking to buy a house in the next year and carrying the credit card debt was bringing down my credit scores (not that they were bad, but there was room for improvement), so I wanted to bring them up higher and not be weighed down by that debt...and also student loan debt is not held against you on a report as bad debt like credit card debt is. 

Many on the forum agreed that I should pay the debt, some did not, i ended up paying my credit card bill off completely in September.

I would pay the auto loan off...i know technically i'm not out of debt, but i'm in much better shape financially, just looked at my scores today!

5/13/09 - EQ 765, TU 744

11/27/09 - EQ 773, TU 778

[Anonymous]

I think you have a good idea.  As long as you have a plan for your repayment and really think you can stick to it so you don't put yourself into a hole I would say it could work in your favor.  Also take into mind like others said there are different types of loans.  I got Direct Loans my last few times.  It was more ideal for me because they are still government backed but also have more options for spending the funds.  Of course like others said there is the fact that no one knows what you really are spending the money on. 

Here is a breakdown of the use of your loan money section of my MPN.  The funds can be used for tuition, room, board, institutional fees, books, supplies, equipment, dependent child care expenses, transportation, commuting expenses, rental or purchase of a personal computer, loan fees and other documented, authorized costs. 

Direct Loans offer a few more options than the traditional federal loans.  They also have been giving me rebates on my loans which have offset the higher loan fee that comes with them.  Look into your options with your school.  I ultimately got money back to give my computer an upgrade and to help with my child care expenses each month so I could work a little more.  But it's also not like I take my student loan check and pay my daycare right after either.  That is a normal monthly expense anyway.  I really don't see how the use of funds can be distinguished.  I think it comes down to how people feel and their own morals and values.  I don't see where you are doing anything wrong as the Direct Loan rules state you can use the proceeds for transportation on top of commuting expenses.  Just be smart because those loans sure do add up.  While you do save on the unsubsidized while in school the loans will still be a big chunk of money when you start repayment.  I have gone from an Associate Degree, Diploma and now a Bachelor Degree and I will be at my cap of $59,000 before I finish and have to pay around $5,000 out of pocket.  Education is a great thing but I am sure it is going to hurt my wallet when I finally finish school and start paying for my loans.  Just one amount I was sent in the mail between my Diploma and current Bachelor program was around $330 a month.  The loans for my Diploma program were not even that much because I already had the generals completed from my previous degree.  I also think people made a great point about the fact that you can get a forbearance if you really need it and that the government is not going to take your car if it got bad enough.  I believe if your situation ever really called for a forbearance it could ultimately help your credit.  While missing a payment on a vehicle can hurt your score really bad you can go into a forbearance which will not affect it in a negative way.  This could be a huge plus for you if something were to ever happen.  Good luck to you.  With a lot of discipline you can make it work.   

[sgtm7]

You are replacing one loan with another lower interest one.   You don't have to start making payments on it until you finish school.  I would do it.  Now if you didn't already have the car, I would say different, but you DO already have the car.