I have an idea about how to pay off my student loans. What's your opinions? See below.?

Question

All numbers are rough numbers, so the idea comes through better:

I borrowed 20,000 from the government, which I am set up to pay back at 5% interest over the next 10 years.

If I were to lend 20,000 to a bank at a higher interest rate, over the same time frame, wouldn't I be able to use the interest income I earned from the 20,000 I lent to pay off the interest expense incurred on the 20,000 I borrowed?

Of course I would, if I lent at a higher rate than I borrowed. My question to you is: Is this arbitrage possible in the real world?

by all means, if you answer this question, expound on your answer, and how it's done.

And what if one of the things i did was refinance my current debt, to a lower rate?

Answer 1

It's possible, but would only make sense if you only owed the interest. Since you have to pay back principal and interest, the interest you earn by lending your $20k would have to be substantially higher in order to repay the principal balance and the interest. If you want to save some money, take your $20k and pay off your debt now. Although 5% is a pretty low rate and you might get some tax benefit for paying it, you shouldkeep your debt at a manageable level until you get finacially established.

Answer 2

The interest you earn, which by the way, won't come near that 5%, will be taxed, whereby you will lose in the long run. If you loan it out to an individual and it is not secured, and he doesn't pay you back, you lose again. You got a good loan deal with 5%, pay it off and save you credibility.

Answer 3

u know what my boy i think u should prove your inteligency in exam rather than on net,tell u what u not gonna finish that dgre and when u drop out and work in construction u wont even afford to payback the debt, the taxman will knock on your door, ur 3 seconds to credit bureu, pls study hard and forget conning the goverment

Answer 4

yes with a capital YES

Answer 5

its done all the time