February 1, 2006
Kramer Tells Students to Flip Student Loans
Jim Kramer has returned to his alma mater, the Harvard Law School, to hold his hit show, Mad Money. The show was great, featuring his unusual candor when asked nontraditional questions by some very bright students (with the exception of the face-painted Harvard football player who asked about Cramer's sex life in college -- I guess football players are the same everywhere). However, he began the show by telling students that he "flipped" his student loans while in school. In other words, he took the proceeds from his subsidized loans and invested them in stocks rather than paying his tuition. His stock profits paid his tuition. His is terrible advice of course. First the ethics of taking government subsidized student loans and investing them in stock are suspect at best. Second, the risk of losing the money in the stock market is substantial. The returns from stock speculation can never beat the beat the risk/return profile of investing in a law degree; a close to sure beat on collecting, in present value terms, a degree worth close to $600,000. I trust students understand that his example should not be followed in this regard.
February 1, 2006 | Permalink
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I have two comments to make: First, I think Prof. Oesterle's trust is misplaced. Many people follow Cramer's suggestions without enough forethought. In my opinion, there are many people (including students) out there playing the stock speculation game without the financial resources or mental aptitude to do so effectively. Second, there is some wisdom, to a degree in Kramer's premise. I think wisely investing any excess student loan money is a good idea. Assuming the investments are short term or liquid low risk investments. Students need to their money available for next term’s expenses. This idea, in my mind, is much smarter than blowing the money they don’t have on alcohol and shopping sprees.
Posted by: Scott Walker | Feb 3, 2006 9:43:44 AM
I must retract my last comment. It has been brought to my attention investing student loan money is illegal. Oops! My bad.
Posted by: Scott Walker | Feb 7, 2006 6:30:25 AM