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I'm a sophomore in college, and have access to $5,500 worth of interest-free-while-I'm still-a-student loans that I don't actually need to use for my education. I'll need to pay the original $5,500 back after I graduate, but in the mean time I'd like to make that money grow as much as possible. What should I do? Most foolish advice focuses on the long term, but it doesn't seem to me that an index fund is my best option for only a two year investment.

The very best thing you can do is decline the loans. If you don't need them, get rid of them. This is even more true for unsubsidized loans. Using loan money to invest is similar to investing on margin, without the threat of a margin call of course. You will have to pay this money back some day, plus interest. I'm not sure any Fool would recommend using this money to invest.

It is true that student loan debt is not nearly as bad as Credit Card debt, but debt is debt. Many graduates have problems paying off their loans, some even have to declare bankruptcy. That would be a financial disaster, your credit would be shot for years at the very moment you'd need good credit for a house, a car, or maybe a loan for something else.

My advice is take out as little loan money as you can. After two years in college you probably have a good idea of what it really costs. Use last year's financial information to figure out a budget (adjusted for higher tuition and inflation, of course.) Figure out what you expect to pay, with a little extra in case of emergencies (one or two months worth of extra cash tops), and decline all the excess loans.

Fool on!


P.S. Check with your bank to find out what the rate is on their CD's. CD's are a good idea for short term savings. Stocks are an option for savings you won't need for at least 5 years. But don't loan money to invest! That puts you behind the 8-ball from the get go!
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