Use student loans to pay off debt??

K_girl · May 11, 2011

Are you considered an independent student? i know a lot of people who used their loans to pay part of their living expenses (car, rent, food, etc) since it is related to school. I am planning on using school loans to pay a portion of my expenses.

stigrl · May 11, 2011

Yes, I'm an independant student.

llg, PhD, RN · May 11, 2011

It's one thing to use student loans to help pay for living expenses while in school. It's another thing entirely to use them to pay off existing debt.

Other types of debt -- e.g. credit card debt, car loans, personal loans, mortgages, etc. can be discharged in bankruptcy. Your credit rating takes a big hit, but the slate is wiped clean and after a few years, your credit recovers. However, at the present time, student loans can NOT be discharged in bankruptcy. You still have to pay them back regardless of your financial situation. People get into BIG TIME financial trouble by taking out big student loans they can't afford to pay back later when something bad happens. They dig themselves a hole they can't get out of. With the other types of debt, you can declare bankruptcy and get a 2nd chance. With student loans, you can't.

Be careful. Taking out big loans is "playing with fire."

Trenia · May 11, 2011

If you are living paycheck to paycheck why did you buy a new car? Unless you have terrible credit, you shouldn't be paying $400 a month on a car note as a college student. Buy a junker like the rest of us. Student loans are not meant to be spent on luxury items. Misuse of student loans can result in criminal prosecution.

stigrl · May 11, 2011

Yes, the car was a series of poor choices. My husband before we got married "upgraded" his just fine car to a fancy sports car, combining the two car loans. Fast forward a couple years later, we are married and pumping money into the car left and right, decide to trade it in for a decent toyota camry that will require minimal maintenance. That was two years ago and we are still paying it off, but once we do we will keep it until it dies. Lesson learned - or should I say lesson learned for my husband.

Thanks for the advice.

Music in My Heart · May 11, 2011

My first thought was the same as llg's - consumer debt is dischargeable, student loan debt is not. Exchanging one for the other entails the assumption of significant financial liability.

Additionally, you're not "paying off debt," you're simply exchanging one for another - albeit at a better interest rate (presumably).

Finally, you haven't even started your BSN program and your financial status is very uncertain. Utilizing student loan money to pay off consumer debt will be limiting your future options to finance your education (and keep in mind that tuition rates are in a state of flux and facing substantial upward pressure).

I would categorize any such move to be very unwise at this point.

I would also issue an ethical challenge to you: Given that many students are presently struggling to access shrinking pools of affordable money to pay for ever-more-expensive tuition, do you think it's socially responsible to redirect student-loan money into consumer loans? Personally, I do not.

Irrespective of the personal values, though, I think it would be a poor financial choice and one which I would caution against for my kids/nieces/nephews.

Much success to you.

stigrl · May 11, 2011

Thank you for the reply. I know it seems stupid to be exchanging debt for debt... it was just an idea I had for getting me through the 3 year program without having to work full time. But I am a very organized and motivated person so maybe I could pull it off.

Music in My Heart · May 11, 2011

Thank you for the reply. I know it seems stupid to be exchanging debt for debt... it was just an idea I had for getting me through the 3 year program without having to work full time. But I am a very organized and motivated person so maybe I could pull it off.

I guess I don't understand how doing so would benefit you. I guess it could improve your monthly cash flow, essentially putting off the payments until you graduate. If you have the cash to service your existing debt then it's probably wiser to use the student-loan funds as they're intended.

Personally, I'd find somebody who understands how to do time-value-of-money calculations - or learn how to do them yourself - and take an objective look at both options along with a realistic budget that leaves you with some cash to tide you over after you graduate and look for work.

While debt is never a good thing, sometimes it is the lesser of two evils and keeping a substantial cash reserve will always allow you more flexibility and lower risk. Cash-on-hand is one of the very first things that accountants look at in evaluating an organization's fiscal health and is an important component of personal financial planning.

Please be very careful about making decisions such as the one that you're considering and *don't* do so without looking at the details of the cost and the risk.

GamerGirL337 · May 11, 2011

I understand all the negatives regarding paying off debt with student loans...but thats what i have been doing for the past 3 years...It works for me thats for sure...I know when I graduate I will have a LOT to pay back, but by the time i graduate i will have my PhD in nursing, and My husband had a full scholarship through college so he won't have one penny to pay back so his income and mine combined, that HUGE amount of loans im going to be paying back is nothing compared to the financial security i have now by using my loans to pay other debts!

I'm NOT in ANY way saying its the best thing to do for everybody...im not saying its right for you, but its working for me...will i regret it later? maybe....i don't know...thats the future, i need to work on the present to even be prepared to go through nursing school!

Basically i was raised in a very poor household, (which i still live in) I live paycheck to paycheck, and my husband is in school full time and has no time to work (nor does he get a refund, if he does its like 200$ which he saves for gas or school supplies)

I made VERY poor decisions when I turned 18 and incurred a Repossessed vehicle, 2 defaulted credit cards and multiple other medical bills and negative marks on my credit. Im considering bankruptcy because even the refunds i get from school don't pay for all the bills i have...

I was just raised with a family that doesn't understand budgeting and credit and it was forced on me when i was 18...

I don't want to keep ranting...but depending on how far you want to go with your career and how you plan for paying back your loans...using a few of your refunds to pay off debt MAY NOT be a bad decision....i would recommend sitting down and getting all of your bills out and determine how much you would need to get ahead....if its not going to be too much then maybe its an option...

BabyLady, BSN, RN · May 11, 2011

For a little background, I have never taken out loans before, I did 2 years of college as a high school student so it was free. This summer, fall and next spring I will be finishing up my pre-reqs at a community college and applying to start next fall to two BSN programs. For numerous reasons, my choices are narrowed down to a public state university and a private school. I am praying I get into the public one because it will be much more affordable, but it is far more competative. Also, right now I am living pay check to pay check. I can easily pay my bills, but I also work two jobs at about 60 hours a week. There is no room to save up for classes or pay huge chunks of anything off. I also make too much money to qualify for any grants or scholarships.
My question is, has anyone used student loans to pay off existing debt to make school a little easier? (I know this isn't "legit") I was thinking if I used my loans to pay down and pay off my car, that is $400 a month I don't have to worry about. I know I will have to work through nursing school, but I would like to keep it to 20 hours a week which would be impossible with the car payment. Or maybe I should just take out the maximum loans and keep everything in a savings account so I have cash to pay for expenses as they come up?
If anyone has done this before and has any pros or cons, that would be great. I am so unsure what the best way to go is! I do not want to be foolish with money or loans.

Here is my advice:

1. Live on campus...I don't care what anyone says...this is cheaper.

2. Get a cheaper car or refinance it.

3. Never, ever pay off credit cards with student loans...ever. You can always bankrupt a credit card, you can never bankrupt a student loan.

4. The financial aid counselor can adjust your income if you are cutting back hours when you start the program. This is a little known fact.

GamerGirL337 · May 12, 2011

Here is my advice:
1. Live on campus...I don't care what anyone says...this is cheaper.

I have NO Idea where you are living where living on campus is cheaper but every school I have ever seen or applied to it is OUTRAGEOUS to live on campus!

At the school i currently attend, all students who live on campus its 2700-3500$ per semester to live on campus, PLUS you HAVE to have a meal plan which is 1900-2500$ (I don't know about anyone else, but I would rather use that extra 4000-6000$ i would be spending every 4 months on bills rather then on living with 3 other random people in an apartment complex where every night is a party...

you can find housing SO much cheaper just about anywhere else (unless your in a BIG city like chicago or NYC) and you could use that money to pay for your housing, your gas, your car, etc...and if you have to work 20 hrs a week, and your housing, car, gas and food is paid for, hell you'll have money left over to pay for whatever else you need!!!