Sunday, 30 August 2015

How I used my University student loan to partially pay off my uni fees

Back in 2012 when I just ord-ed from army, I heard of something called student loans to pay for uni... at 0% interest holyshitwhat.

Of course there were a few catches such as
  • Its only interest free when you study
  • It only covers up to 90% of your fees
  • They don't give out the cash, the money goes directly to the school to pay for the fees

Also I wasnt smart enough to get a scholarship (taken from dbs website)


Current amount I owe (+7.5k more when my final year ends)

As the money from the loan doesn't go directly to you but to the uni instead, it stops you from doing 'funny stuff' with the money.

But luckily my mum was on hand with spare cash, which could be used for the funny stuff instead

So instead of just borrowing from my mum, to pay for Uni and then paying her back when I get a job, it evolved into something like
  1. Apply for 0% interest loan
  2. Borrow from mum the $23,000 set aside originally for uni for a small interest 
  3. Use the $23,000 to buy 2 lots of dbs 4.7% preference shares
  4. Collect $1880 a year in interest
  5. Which totals up to $5640 in 3 years
  6. Which helps to reduce my uni fees about 20% (after paying mum interest)
  7. Snort at the irony of borrowing from dbs and then lending them the same money for interest
Here's a poorly drawn diagram

Before

After (initially)


After (when the student loan is due)

Sorry $2820 in interest i meant
Everyone wins!
  • DBS wins by showing the government it was a good bank by loaning students money
  • My mom wins by earning interest in loaning me cash
  • I win in earning $2,820ish to help pay for tuition costs
A bit on DBS 4.7% preference shares
  • Its a cross between a stock and a bond
  • Actively traded on the STI like a stock
  • Pays 4.7% dividend semi-annually like a bond
  • Redeemable after 10 years at par (like a bond)
Why were preference shares my choice of investment?
  • Safe, DBS HAS to pay dividends on the preference shares before its common shares
  • Prices doesn't fluctuate much, also since its redeemable at par, it has always been trading above par (since it pays a dividend)
  • I really liked the irony of loaning money to DBS at the profit, role reversal between the consumer and the bank

Anyone else that has done this before? Please comment below thanks!

Ok, this isn't really true, since instead of borrowing from your parents you are borrowing from the bank

16 comments:

  1. Since you are likely going to buy the pref shares above par value, you might want to take note that you'll incur a guaranteed capital loss when the issuer redeem back the shares at par value. This also means that the % returns will be worser than 4.7% pa, if you take into account the capital loss. The yield is also not going to be 4.7% pa since that's the coupon yield. Have you worked out the actual yield?

    Lastly, the first optional redemption date for the pref share is Nov 2020. They might not redeem back. It's a perp, if I'm not wrong. This means that the maturity date might not be 2020 (i don't know why you said it's for 10 yrs - 10 yrs from?) and can be very far down the road.

    So you might not get back your capital at the end of 2020. Will this affect your repayment?

    ReplyDelete
    Replies
    1. Hey, la papillion

      1) yep it was bought above par and yes if they do decide to redeem it at the optional Nov 2020 date, or sell it at par i would incur a slight capital loss (making $2,000 instead of $2,800)


      2) At 105 now its current actual yield is 3.89% assuming its held and redeemed thru Nov 2020, inline with Ocbc (3.48%), and even on par with genting (3.9%)

      3) If I do sell at the market (which i do intend to when i graduate, i would make a slightish loss in terms of capital but would still sit comfortably in $2000 in terms of gains. (Which means selling at ~101)

      4) Well unless dbs 4.7% tanks to below 90, which I have enough capital buffer to make up for it

      thanks for asking about the clarification! Will post the yield to call calculations for other preference shares and bonds another time

      Delete
    2. Seems like u know u stuff n done ur homework. Good job!

      Delete
  2. Woo cool idea! Love the irony. At that time I didn't know about stocks and bonds, if not I would have done it. How did you get the interest of $1880 per year? I think you double counted the dividend...

    ReplyDelete
    Replies
    1. Thanks for that! Sorry I missed that out.

      Delete
    2. Anyway do you want to trade bloglinks? I added yours to my blogroll

      Delete
    3. Haha sure... Actually I already added yours after reading your first post #notastalker

      Delete
  3. 0% interest study loan? Must keep track of this ...

    That being the pre-condition, looks like any other investment scheme that gives any sort of returns will be a plus. Of course, may be with different risks involved. Even SSB or the recent Aspial bond (higher risk than SSB) should work.

    Thanks for the tip!

    ReplyDelete
    Replies
    1. I mean you can chuck it in a 3-4 year fix deposit with dbs and still make a few hundred bucks :D

      Do you mind adding my blog to your blogroll? Cheers!

      Delete
  4. I like your logical and neat calculations here.You are lucky that your mom lent you money so there's no bank loan to pay after uni. I recalled using study loans + bursary + tuition jobs during the uni years to repay back the uni fee debt asap upon grad.

    ReplyDelete
    Replies
    1. Hats off to you sir, anyone that manages to pay back their debt upon grad is awesome. Yeah I totally lucked out because my mum loaned me the money, without that none of this would be possible

      Delete
  5. The bank serves as an administrator only, the government is the only dishing out the interest free tuition loan.

    ReplyDelete
    Replies
    1. So the capital comes from the government? I always thought the government just 'coaxed' the banks to make student loans 0%

      Delete
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