How to make money off of the HPSP program

December 17, 2007 at 11:03 pm (Military medicine)

The military’s HPSP scholarship program pays for all expenses related to medical school training including tuition, books, and necessary supplies such as a stethoscope. The scholarship fund also provides money for room and board in the form of an annual salary. Currently, the military pays us just over $21,000 a year. While this amount sounds like a lot for a student, it is hardly enough to get by when attending a school in a major urban area. A few weeks ago I had a realization that military students can use the HPSP program to their benefit and generate additional income through investing.

The Department of Education currently allows graduate and professional students to take out federally subsidized loans up to $8,500 each academic year. That’s a free loan. And for students who can invest the money, all of the profits made off of the interest is theirs to keep.

Let’s say I withdraw $8,500 annually and invest the money, for a grand total of $34,000 borrowed over the course of four years. For this scenario, I will pay back all of my student loans the day I graduate medical school. I started running some numbers and here’s what I found:

If I invest in a relatively safe mutual fund that has a 7% gain each year, I’ll graduate with just over $40,000. That’s $6,000 for free. Now that may not sound like a lot, but six grand can pay for quite a few toys leading up to residency.

If I invest in a high yield mutual fund and it brings in 20% a year (and there are quite a few of those), I’ll finish with $54,000-a total profit of $20,000! Now that’s a new car.

I wish I had thought of this scheme when I first started medical school. I’ve already filed my FAFSA and am waiting to hear back on withdrawing a lone starting in the spring semester. If my calculations are correct, I might be able to pull in between $1,000-$5,000.

I wonder if anyone else has thought up this idea. I haven’t seen it online anywhere, but I’m sure that other students have tried it before.



  1. Chris said,

    This is an example of arbitrage, and yes it’s been around for ages. One common variant is to take a cash advance, transfer the balance to a card with a low-interest teaser, and then put the cash into a savings account. Once the teaser is up, unwind the positions and profit from the levered spread.

    The risk of throwing money into an aggressive mutual fund, as you advise above, is that the principle decreases, which leaves the would-be arbitrageur owing money! The only mutual funds worth going with are index-tracking funds, and given that the US economy will most likely enter a recession next year, it is quite likely that someone could lose lots of money in the end. (There are index funds that double-short the market, plus there are foreign-focused funds that can make money from the falling dollar, but these are a whole different discussion.)

  2. CHenry said,

    The Department of Education may allow up to that limit, but your particular school has to certify the amount you are eligible to borrow. If your school likes to post low graduating debt stats, they might say that HPSP adequately funds you and certify that you are entitled to borrow much less than the maximum allowed by the Department of Education. So your investment fund could end up much smaller. And of course, if you go to school in NYC or DC, yo might actually need that money to live on.

  3. jeff said,

    if you got money, u should invest in hedge funds, like
    my bro’s really smart with 3.97 GPA from UC berkeley. 😉

    that will do.

  4. Visish said,

    This is exactly what I was planning on doing! I’m starting med school next year with HPSP (hopefully).

  5. Xavier said,

    Ha, I did that throughout my undergraduate career, throwing all my federal loans that I didn’t actually need into high interest online savings accounts. Came out ahead by a few grand, was nice. Of course, with the federal rate at an all-time low as of this week, that won’t work so well anymore…

  6. adam said,

    That sounds like a great idea buddy, but…
    it’s not gonna work. Once you get your military money coming in the
    financial aid office looks at it and says, “the guy doesn’t need the federal money cause he’s getting military money.” Then, the nice 6 or 7 grand that you were getting per semester for living expenses goes to zero!
    It happened to me.

    Half M.D.: My school must be more generous than yours. Because our tuition is so high, many HPSP students are on loans in addition to the scholarship.

  7. Everything Finance said,

    Great Article. Nice Work.

  8. Elaine said,

    I wonder how this actually went for you, as you posted right before the huge stock market drop, and the interest rates going down to, like, 1%.

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