Never Pay Interest On Student Loans Again

If you have money invested in stocks, you could make yourself a very low interest rate personal loans. When I went back to school for my graduate degree in Accounting and Finance Management, the interest rate on Federal student loans for graduate students was about 6.6%. One alternative to taking out these loans would be to use futures as a low interest rate student loan.

An example would be if I had $140,000 invested in the S&P 500, I could sell those shares and would have $140,000 in cash. I could then buy one e-mini S&P 500 futures contract for a couple dollars in fees that is equivalent to $140,000 in the S&P 500 index. My broker would also require me to keep a small percent in margin probably in the neighborhood of $14,000. Knowing the volatility of the stock market, I would probably keep closer to $120,000 instead of the $14,000 requirement. This leaves me $20,000 to use to pay my tuition, $120,000 in cash to use as a buffer to weather volatility in the S&P 500 index, and the same $140,000 exposure to the gains and losses of the S&P 500 index. The biggest downside of this approach is that futures contracts expire every three months, so once every three months, I would need to close my old contract and buy the new one.

Stock investment Cash/Margin Futures Stock Exposure Debt
Initial $140,000 $0 $0 $20,000
Sell stock $0 $140,000 $0 $20,000
Buy Futures $0 $140,000 $140,000 $20,000
Pay Debt $0 $120,000 $140,000 $0

So instead of paying $1,320 in interest expense for a $20,000, I would need to pay about $10 ($2.50 x 4) in brokerage commissions and a few minutes four times a year. I don’t know about you, but the extra 20 minutes a year is well worth the savings of $1,310 in interest!

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