GDP and Debt

#76
#76
If you friends had such a high GPA why were they not able to get a scholarship? Surely an accounting major with one of the highes GPA's in his class could get a scholarship.
 
#77
#77
oklavol said:
The amount of money the U.S. has to borrow to pay the interest on the debt is staggering, and could be put to much better use. This is a growing problem.
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We have to borrow because we have deficits. Get rid of the deficits and you wouldn't have to borrow to pay the interest on the debt.
 
#78
#78
oklavol said:
If you friends had such a high GPA why were they not able to get a scholarship? Surely an accounting major with one of the highes GPA's in his class could get a scholarship.
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Full ride scholarships, with no obligation to the person giving the scholarship, are pretty hard to come by, especially when there is no 'financial need.' Of course, financial need is based upon parents' income level. My, and most of my friends', parents were not too keen on paying for our educations.
 
#79
#79
allvol123 said:
These great students should be more than agile enough to accomplish more than one thing at a time. To say that a kid can't pay his way through school wthout borrowing, maintain good grades, enjoy college and be extremely successful after college is absolutely absurd.
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And, paying for your college tuition, in cash is more absurd. You can get school loans that will pay for all basic college expenses (tuition and room & board.) Ed South has loans as low as 4.25%. Let's take the $17K/year at UT. Front load the school loan into a mutual fund earning 10%. Say the loan is a fifteen year loan. For just one year of college, you end up paying $23,000 after 15 years, but you end up with $71,000 in your investment. Do that 4 times (4 years of college) and you have a net profit, after 15 years, of around $192,000! Yet, it incurs some (a miniscule amount) risk, so go ahead and pay cash for your tuition.

Or, let's look at this scenario. Instead of working through college to pay your full tuition, say the student works through the summer, makes around $10,000 every summer, invests it, and uses loans to pay for his school. His net profit after 15 years, $75,000...not too shabby.
 
#80
#80
therealUT said:
And, paying for your college tuition, in cash is more absurd. You can get school loans that will pay for all basic college expenses (tuition and room & board.) Ed South has loans as low as 4.25%. Let's take the $17K/year at UT. Front load the school loan into a mutual fund earning 10%. Say the loan is a fifteen year loan. For just one year of college, you end up paying $23,000 after 15 years, but you end up with $71,000 in your investment. Do that 4 times (4 years of college) and you have a net profit, after 15 years, of around $192,000! Yet, it incurs some (a miniscule amount) risk, so go ahead and pay cash for your tuition.

Or, let's look at this scenario. Instead of working through college to pay your full tuition, say the student works through the summer, makes around $10,000 every summer, invests it, and uses loans to pay for his school. His net profit after 15 years, $75,000...not too shabby.
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So when he uses the 17,000 he got to go to school with but invests it instead, how did he pay for school?
 
#81
#81
allvol123 said:
So when he uses the 17,000 he got to go to school with but invests it instead, how did he pay for school?
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He used the $17,000 on school and invested the $10,000 made in the summers. Seriously, this is not rocket science. Run the numbers, evaluate the net gains and losses, and analyze the risk. People who work through college to avoid having to take out student loans are ignorant to the fact that their money could be put to better use in securities.
 
#82
#82
volinbham said:
We have to borrow because we have deficits. Get rid of the deficits and you wouldn't have to borrow to pay the interest on the debt.
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We pay interest on the money the U.S. govt owes. As the amount of money the U.S. owes grows, this interest payment becomes enormous.
 
#83
#83
therealUT said:
He used the $17,000 on school and invested the $10,000 made in the summers. Seriously, this is not rocket science. Run the numbers, evaluate the net gains and losses, and analyze the risk. People who work through college to avoid having to take out student loans are ignorant to the fact that their money could be put to better use in securities.
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no no, you said nothing about the 10,000 in the first paragraph with the 192,000 profit. He got a 17,000 loan and was able to invest it and pay for school with it was the way you wrote it. How did he do this?
 
#84
#84
allvol123 said:
no no, you said nothing about the 10,000 in the first paragraph with the 192,000 profit. He got a 17,000 loan and was able to invest it and pay for school with it was the way you wrote it. How did he do this?
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I am really sick of baby stepping you through this, allvol:
And, paying for your college tuition, in cash is more absurd. You can get school loans that will pay for all basic college expenses (tuition and room & board.) Ed South has loans as low as 4.25%. Let's take the $17K/year at UT. Front load the school loan into a mutual fund earning 10%. Say the loan is a fifteen year loan. For just one year of college, you end up paying $23,000 after 15 years, but you end up with $71,000 in your investment. Do that 4 times (4 years of college) and you have a net profit, after 15 years, of around $192,000! Yet, it incurs some (a miniscule amount) risk, so go ahead and pay cash for your tuition.
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If you are paying for your tuition in cash, then you have the money to invest. Sure, I guess that was implied, however, it is pretty obvious to anyone who can read for content and context, at the same time! Also implied, but maybe a little tougher to discern, is that if you work through school to make that $17,000 (or more) then it would still be wiser to invest those earnings and to finance your education through school loans.

You can try to pick at the smallest minutia of my argument all day, however, you cannot effectively counter the principle of my argument that low interest debt taken to invest in high yield securities is somehow backwards or wrong. Following a risk assessment, which in the cases I have presented show little risk, the financially wise course of action is to use debt leverage!
 
#85
#85
oklavol said:
We pay interest on the money the U.S. govt owes. As the amount of money the U.S. owes grows, this interest payment becomes enormous.
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Provide me with an interest rate, please...Then, let us judge for ourselves whether or not the interest payments are "enormous." Here, I will help you with this. Governments issue bonds in order to borrow money. You might have had one at some time in your life. What are the yields on these bonds? Maybe 3%??? So, the gov't borrows at around 3%!!! This might raise our debt:GDP ratio to just shy of 80%!!! Oh, the humanity!!!

Enormous? Relatively speaking, no.
 
#86
#86
therealUT said:
I am really sick of baby stepping you through this, allvol:

If you are paying for your tuition in cash, then you have the money to invest. Sure, I guess that was implied, however, it is pretty obvious to anyone who can read for content and context, at the same time! Also implied, but maybe a little tougher to discern, is that if you work through school to make that $17,000 (or more) then it would still be wiser to invest those earnings and to finance your education through school loans.

You can try to pick at the smallest minutia of my argument all day, however, you cannot effectively counter the principle of my argument that low interest debt taken to invest in high yield securities is somehow backwards or wrong. Following a risk assessment, which in the cases I have presented show little risk, the financially wise course of action is to use debt leverage!
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So how much did you make from doing this in college?
 
#87
#87
therealUT said:
Provide me with an interest rate, please...Then, let us judge for ourselves whether or not the interest payments are "enormous." Here, I will help you with this. Governments issue bonds in order to borrow money. You might have had one at some time in your life. What are the yields on these bonds? Maybe 3%??? So, the gov't borrows at around 3%!!! This might raise our debt:GDP ratio to just shy of 80%!!! Oh, the humanity!!!

Enormous? Relatively speaking, no.
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Who owns most of this debt? Its not fellow Americans, a large % of it is foreign investment.

What happens when the U.S. debt gets so high they decide U.S. bonds are a risky investment? What happens then???

Or if they decide they dont' agree with American Foreign policy, and decide to stop financing the U.S. debt. For one the U.S. dollar will lose an enormous amount of its value.

There are a multitude of reasons why its not in the interest of this to have a large national debt.
 
#88
#88
allvol123 said:
So how much did you make from doing this in college?
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If you invest $17,000/year, each year, for 4 years at 10%, you will net $35,787 at the end of the 4 years.

You will have $103,787 in your investment.

Say you use the Stafford loan, 3.37% over 10 years. In ten years you will have paid $80,194 total over 10 years (including interest).

Over the same 10 years, your $103,787 investment has turned into $269,197 (or 4 times what you paid in loans!)
 
#90
#90
I know somebody that did something remarkably similar to this. :whistling:
 
#91
#91
therealUT said:
If you invest $17,000/year, each year, for 4 years at 10%, you will net $35,787 at the end of the 4 years.

You will have $103,787 in your investment.

Say you use the Stafford loan, 3.37% over 10 years. In ten years you will have paid $80,194 total over 10 years (including interest).

Over the same 10 years, your $103,787 investment has turned into $269,197 (or 4 times what you paid in loans!)
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No one recommends mortgaging your house to make investments, because the interest rate on your house is lower then the expected yield on the investment. There's too much risk involved. Its a similar arguement.
 
#92
#92
therealUT said:
If you invest $17,000/year, each year, for 4 years at 10%, you will net $35,787 at the end of the 4 years.

You will have $103,787 in your investment.

Say you use the Stafford loan, 3.37% over 10 years. In ten years you will have paid $80,194 total over 10 years (including interest).

Over the same 10 years, your $103,787 investment has turned into $269,197 (or 4 times what you paid in loans!)
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I didn't ask what could you make.

I asked what you did make. You completely rule out the real world in all of this. Yes your numbers add up. But you take a kid at that age and get him into borrowing and he loses focus, he thinks it is ok to borrow for everything. So he invests the 10,000, then crap happens, and he realizes the 17,000 he borrowed to use for school is not enough. he says, the hell with it, I will just borrow more money. He ends up using credit cards to go to the movies and buy flowers for his girl, for anything he wants. Then the margins are not as big as you make them. He winds up with the mindset that it is ok to go through life borrowing money for every little want he has.
 
#93
#93
oklavol said:
Who owns most of this debt? Its not fellow Americans, a large % of it is foreign investment.

What happens when the U.S. debt gets so high they decide U.S. bonds are a risky investment? What happens then??? Or if they decide they dont' agree with American Foreign policy, and decide to stop financing the U.S. debt. For one the U.S. dollar will lose an enormous amount of its value.

There are a multitude of reasons why its not in the interest of this to have a large national debt.
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When U.S. debt gets high enough that they stop investing, then interest rates rise. That is called supply and demand. However, I am going to state that 3% and 4% interest rates mean there is a whole lot of investor confidence in the US economy.

Also, there is a notion that American citizens have to repay the debt. That is almost categorically wrong! If foreign investment absolutely stops, then yes, the American citizen will have to pay off the debt. However, the US does a great job of paying off higher interest debt by issuing lower interest bonds. As long as our economy continues to thrive (Wall Street has been experiencing record highs in the past week), then investors will continue to purchase bonds at a lower rate. The lower the rate, the less the US owes, the more money is freed up in budgeting, and the less debt we incur. Foreign investments will begin curtail when our debt:GDP ratio hits about 150%. The largest our debt:GDP ratio has been in the past 100 years was a little over 90%...that was to finance WWII and the Fair Deal. I doubt we are going to see anything like that in the near future. Especially since the debt:GDP ratio is forecasted to plateau at around 72% over the next several years.
 
#94
#94
Who holds a vast majority of our national debt? Japan and China. Japan holds 30% and China 15%.
 
#95
#95
allvol123 said:
I didn't ask what could you make.

I asked what you did make. You completely rule out the real world in all of this. Yes your numbers add up. But you take a kid at that age and get him into borrowing and he loses focus, he thinks it is ok to borrow for everything. So he invests the 10,000, then crap happens, and he realizes the 17,000 he borrowed to use for school is not enough. he says, the hell with it, I will just borrow more money. He ends up using credit cards to go to the movies and buy flowers for his girl, for anything he wants. Then the margins are not as big as you make them. He winds up with the mindset that it is ok to go through life borrowing money for every little want he has.
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What about a kid getting a full ride on a HOPE scholarship who also qualifies for a Stafford loan and puts it in the market? I think your point is well taken that in general borrowing to invest is dangerous, but there are times when the risk is tolerable and the numbers work.

If well managed debt were such a horrible thing, everybody with a mortgage would immediately abandon their 401(k) to pay off their homes.
 
#96
#96
allvol123 said:
I didn't ask what could you make.

I asked what you did make. You completely rule out the real world in all of this. Yes your numbers add up. But you take a kid at that age and get him into borrowing and he loses focus, he thinks it is ok to borrow for everything. So he invests the 10,000, then crap happens, and he realizes the 17,000 he borrowed to use for school is not enough. he says, the hell with it, I will just borrow more money. He ends up using credit cards to go to the movies and buy flowers for his girl, for anything he wants. Then the margins are not as big as you make them. He winds up with the mindset that it is ok to go through life borrowing money for every little want he has.
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You are asking me what I have made on my $25,000 loan at 3.25%? I made plenty.
 
#97
#97
GAVol said:
What about a kid getting a full ride on a HOPE scholarship who also qualifies for a Stafford loan and puts it in the market?

I think your point is well taken that in general borrowing to invest is dangerous, but there are times when the risk is tolerable and the numbers work.
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I can agree with that.
 
#98
#98
GAVol said:
What about a kid getting a full ride on a HOPE scholarship who also qualifies for a Stafford loan and puts it in the market?
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That is basically what I did. I went through UT on a full ROTC scholarship. I applied for student loans, because they are available and the rates at the time were in the low 4s. ROTC paid my tuition, books, and provided me with a $400 monthly stipend. I worked through the summers to build spending money. Then I followed my father's investment portfolio, and put over $10,000/year ($35,000 my senior year due to the pre-commissioning loan) in higher yield securities (the old addage, when you are young take greater investment risks, less risk as you near retirement) and I really have nothing to worry about as I continue through my military career.
 
#99
#99
therealUT said:
You are asking me what I have made on my $25,000 loan at 3.25%? I made plenty.
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Don't you have to sign some papers when you take a school loan that your going to use this money for tuition and college expenses? I'm sure the govt didn't start this program to finance your investments.

This kind of action, is what gets programs that benefit a great many people cancelled.
 
#100
#100
oklavol said:
Don't you have to sign some papers when you take a school loan that your going to use this money for tuition and college expenses? I'm sure the govt didn't start this program to finance your investments.

This kind of action, is what gets programs that benefit a great many people cancelled.
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No, you just have to prove to the government that you are enrolled in the stated institution full time. What you do with the money is up to you.
 
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