Financing Education through Credit Card or Student Loans

I’m currently back in school, full-time, for an MBA (20 month program). I don’t need to worry about tuition, but I still need to pay for living expenses out of pocket.

Should I rely on student loans, or a 0% credit card?

  1. Student Loans – I can get $10,000/semester in loans from the US Government, at a 6.8% interest rate, with a 1% origination fee. These loans are unsubsidized, so they are compounding while I’m in school.

  2. Credit Card – I have great credit, and I managed to secure about $20,000 in 0% credit cards that will last me 18 months, pretty much just long enough to get through school.

My thought is that the credit card loan is unsecured, is not accruing interest, and can be discharged in bankruptcy (worst case scenario). The student loans are accruing interest, will be with me for life, but are at least at a fixed rate.

I pay my rent and bills with my student loans, since I get cash directly from these loans. I only take the amount out in student loans that I absolutely need. Otherwise, I rely mostly on my credit cards.

I should net about $10,000 this summer from my internship, and I’m on track for full-time recruitment, which is on average about $100,000 salary with a $10,000 – $20,000 signing bonus. I would use this money to pay off the Credit Card before it starts accruing interest.

Do you guys foresee any potential problems with this strategy? I’m not sure if I’m working the system, or if I’m being stupid about something. If necessary, I could take more student loan money and pay off the credit card immediately.

(PS – please feel free to close if this is considered Personal Finance Advice. I will not be offended.)

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2 Responses to “Financing Education through Credit Card or Student Loans”

  1. I would use student loans and avoid credit card debt if debt is your only option.

    Here are the advantages I see:

    • Fixed interest rate
    • Flexible repayment options should you absolutely need it
    • Even though the loans are accruing interest in school, you shouldn’t be required to make payments until you 6 months after leaving school.

    Disadvantages:

    • Student loans are yours for life. Unless the law changes, even bankruptcy won’t clear your student loans.
  2. If you are very sure, say 90%, that you’ll pay the zero percent card off before paying interest, that would be my choice. Less certainty than that, I think the 6.8% over a longer term is less of a cash flow issue, and you can still pay it in full upon getting the job bonus.