How to make money in Student Lending

In the early 1990s, I discovered a way to make extra money through student lending while in grad school. This was not “life-changing” money, but it was meaningful, and it gave me a valuable sense of “skin in the game.” Experiencing real financial risk, even on a small scale, taught me lessons that shaped my approach to decision-making. As Nassim Nicholas Taleb emphasizes, “skin in the game” is the best teacher. It forces you to confront the reality of risk and rewards, keeping you accountable and focused. This early exposure to risk not only gave me the thrill of accomplishment but also the confidence to pursue calculated risks later in life.

About the author: Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.

Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.

This article highlights Personal Finance Reimagined and our Investment Barbell Strategy. We describe how IBS is implemented in a shorter than desired period. While not ideal, it will work with the proper diversification strategy, flexibility, and a little luck.

Here is my story. I chose to study Economics in grad school because it combined my interests in business and math. From the start, I aimed to keep costs as low as possible. I applied to several schools, narrowed down my options, and ultimately chose Virginia Commonwealth University (Rams) over the University of Oregon (Ducks) because VCU offered a stronger financial package. My financial aid at VCU included a full-tuition scholarship and a part-time stipend to work in their Financial Aid department.

With this setup, I was on my way to an affordable education. Working in the Financial Aid department gave me insight into many details about student aid, particularly student loans—a lesson still relevant for students today. I learned two critical rules about student loans:

1. As a non-dependent grad student with minimal Expected Family Contribution (EFC), I qualified for substantial student loan funding, even with a full-tuition scholarship.

2. The subsidized Stafford loan program provided a six-month grace period after graduation before repayment began AND interest accrues.

I had recently married, and my wife and I were starting from scratch financially. She was earning a first-year teacher’s salary, and I was receiving a small stipend. We had no debt but also no savings, so we lived very frugally in Richmond, Virginia. Much of our clothing came from thrift stores, and our entertainment often meant hanging out with friends at each other's apartments. Our life felt like a Zac Brown song: 🎶 “No we don't have a lot of money... All we need is love!”

Even back then—and still to this day—I was captivated by data and technology. My “nerdiness” ran deep: I had built my own computer with an Intel 8088 chip, one of the earliest processors, and had taught myself DOS and machine language. While I loved diving into the complexities of programming, it was clear that Microsoft Windows, with its revolutionary graphical user interface, would soon make personal computers accessible to people beyond tech enthusiasts like me. It was the early 1990s, and personal computing and data usage were still in their infancy compared to today. I saw a clear opportunity for data to transform business and economics. Oracle, in particular, seemed poised to play a vital role in helping companies manage and harness this growing wealth of information.

With a two-and-a-half-year timeline of “free money,” I decided to maximize my loan eligibility and take out the full amount of Stafford loans. My dad had given me a copy of One Up on Wall Street by Peter Lynch a few years earlier, and I was intrigued by Lynch’s approach to investing. Knowing that Lynch had successfully led the Fidelity Magellan Fund, I invested most of my loan funds in this diversified mutual fund. I also set aside a small portion for some promising individual stocks, like Microsoft and Oracle. Thanks to our low-expense lifestyle, I could make these investments and explore the strategies I had learned from Lynch’s insights.

Researching stocks at that time was vastly different from today. I relied on printed materials like annual reports, investment newsletters, and industry magazines. Business publications like The Wall Street Journal and Barron’s were invaluable, providing insights into market trends and financial performance. I focused on company fundamentals—profit margins, revenue growth, market position, and innovation. Microsoft and Oracle, for instance, were rapidly growing tech companies with strong market demand and innovative products, making them promising choices for growth.

This approach was driven by patience and cautious optimism. By diversifying across a stable mutual fund and a few well-researched stocks, I aimed for a balanced investment with calculated exposure to high-potential growth.

Two years later, I graduated, and within a year, I had liquidated the investments, paid off the loans, and netted a return of over 50%. This profit helped us put a down payment on our first home, just as we were preparing for the arrival of our first child. My wife and I still consider that time one of the highlights of our marriage.

Some may wonder, “Was this allowed?” While investing was not the federal loan system’s intent, I believe it aligned with its broader purpose:

1. I earned the education as intended, and I gained an invaluable “practical” economics education by managing a real investment portfolio.

2. I viewed my approach as “capital liberation” given the federal government’s inefficiency in resource allocation.

3. I directed resources toward companies that could productively use them.

4. My well-considered decisions were rewarded, and I repaid the loan in full.

What was the reason for not keeping the investments and repaying the loan gradually? Looking back, that would have been a smart move. I could have profited immensely from Microsoft and Oracle stock gains, and Fidelity Magellan later became one of the best-performing mutual funds in history. However, hindsight is 20/20. At that time, we had little in savings, I was starting a new job, and we were building a family. My risk tolerance was low. I decided to repay the loan in full to bring that chapter to a close and get ready to invest that capital in our first home.

What is the moral of the story? Part of my success was due to fortunate timing—the market trend during my graduate school years was moving in a positive direction. While two-and-a-half years may seem like a substantial period, my advice is to think even longer term. A typical "boom-bust" business cycle spans 7-10 years. Shorter investment time horizons run the risk of getting the negative "bust" impact without the "boom" benefit. Being in a diversified mutual fund like the Magellan Fund helped lessen that risk. The risk I took was to either 1) delay a home purchase while I waited for the next market boom or 2) liquidate the financial investments with a lower return than hoped. Being diversified meant that either of these options was not the end of the world -- but I am glad it worked out the way it did.

In some ways, I did get lucky. But as Seneca wisely said, “Luck is where preparation and opportunity meet.” This experience taught me to take calculated risks, balancing volatility, diversification, and time. It inspired what I now call the Investment Barbell Strategy—a strategy I have refined over decades and now share with clients and teach in my personal finance classes, books, articles, and videos. In line with Taleb’s concept of “skin in the game,” this experience reinforced the importance of seeking the appropriate risk exposure. Real learning happens when you have something to lose. My investments were well thought out, but they carried risk, and the outcomes could have easily been different. Opportunity costs can swing either way, positive or negative.

Through this experience, I gained the confidence to manage risk exposure. I learned to balance calculated “flyers” with well-diversified investments, ensuring that if some investments did not succeed, they would not lead to ruin. It is like Warren Buffett’s advice: “Don’t test the depth of the river with both feet.”

To this day, I am grateful to Virginia Commonwealth University for providing a valuable academic education in economics and the chance to apply those lessons to real-life financial strategies.

For more information on my investing philosophy and the Investment Barbell Strategy, check out my book and personal finance platform.