Paying Off Student Loans & Arbitrage

The following transcription was from the Bulletproof Youtube channel. Here is the https://www.youtube.com/watch?v=-vFytIpQ0mE

Peter Boulden
Okay, everybody, it's Peter. I'm just coming at you solo. Thanks for tuning in to the latest episode of the Bulletproof Dental Practice podcast. Today I'm going to talk about something that I talk to several people a lot. I even told one of our colleagues at the summit about and summon about it, and it's a tactic I use to get out of debt. And when I say debt, I mean student loan debt, which is, I think, the most corrosive mentally for you to have. So this pod is gonna go over a couple things. The method to employ to get out of student debt, even if you don't have the cash in the sidelines.

Peter Boulden
And the second thing is gonna be something called arbitrage, and it's a cool little arbitrage play that I've done using a line of credit. So today we're gonna be talking about lines of credit or kind of the thesis of both of them. Again, the first part of this is student loan debt. Many of you know me, if you've been to the seminars, the podcast, I'm definitely a numbers guy. I dig into financials, I'm into crypto and all the things. So this is kind of where I geek out. And this method I'm going to ascribe to you is something that it applies to if you have student loan debt and if you have a home. Right now you own a home. And the second thing is gonna be says something on an arbitrage.

Peter Boulden
An arbitrage, I'll explain all that later. But if you don't have student debt or you don't have a home, fast forward to the second half of this podcast. Okay, the other thing I wanna say is a disclaimer, is that this is by no means am I a qualified financial advisor. This is a very tactical podcast, but don't take what I'm saying as gospel and saying it's, well, you told me and this, that, and the other.

Peter Boulden
We all know this is the disclaimer everything is regulated differently in every state and jurisdiction so maybe you can kind of use this this pod as fodder to kind of look in and do your own due diligence research to see like hey that was an idea but what if I did x y and z in my state so let me jump into it I'm going to share my screen because it's just a lot easier so if you're listening to this on the airwaves, you can just check in the YouTube. I will try and illustrate as much verbally as possible so that a lot of people are doing this in their driving or don't wanna have to go watch YouTube. If you are watching YouTube, I'm gonna kind of demonstrate some things here.

Peter Boulden
So here we go. And the first thing I'm gonna describe to you is the difference between, okay, so student loans. If you have a student loan debt, you have seen that as something called an unsecured debt. An unsecured debt versus a secured debt is mainly the only difference is collateral. And some examples of a secured debt is a mortgage, home equity loan, auto loan, things that are tied to something that has tangible value in an open market.

Peter Boulden
Unsecured debt is things like medical bills, credit card bills, or student loan debt. Again, I know I'm probably gonna get some comments that, well, we don't have to pay on student loans anyway right now, we're getting relief because of COVID. Until, it looks like, I'm taking this from the government website, it looks like it's 0% interest or interest has been suspended until January 31st, 2020. Eventually it's gonna be time to pay the piper.

Peter Boulden
So this may be a tactical thing you put into, and I don't know if that applies to dentistry, if they said everyone except dentistry or everyone except doctors or who knows. Again, I don't live in that world because I implemented this tactic and then paid it off and then paid that off. Interest rates typically on student loan rates as of August 2021, typically fall in the range of 3.7 to 6.28. In my anecdotal evidence, when I talk to young dentists, that I'm seeing that it's typically around 5.5, 6%.

Peter Boulden
And again, this is an unsecured debt. So a bank, whenever you go to apply for more credit, they look at that and they say, hmm, they already have unsecured debt, which is hard to collateralize, and we can't take back that education, that brain of someone. So unsecured debt makes banks or lenders very nervous because they know there's debt service still attached to that, right?

Peter Boulden
It eats into your monthly. On average again, so let's just say that we're in the, let's call it four to 7% because I've heard it as high as 7%. You can deduct the interest on your student loan. That being said, it's up to $2,500, and that's where it's capped out, no matter how much you owe. So many people have student loans that are, I mean, not many, but I've heard lots of evidence of $400,000, $500,000.

Peter Boulden
But here's the kicker, is that student loans, the deductions get phased out. So if your AGI is above $140,000, then it starts phasing out, and you can't even claim the deduction at all if your modified AGI is above $170,000. So that's when you're filing married. So if you're filing single, you can't claim the deduction if your modified AGI is more than $85,000. So it looks sexy to say, well, the interest is tax deductible from the student loan, therefore, because it's an education. I'll just leave it as is. but some of you listening to this, it may, if you dig in, you'll see that you're probably not getting that full $2,500.

Peter Boulden
And even if you are, this method still, or this lesson is still a good one because we're gonna take something from, that is an unsecured, and it has limits on its tax deductibility and classifying it into a better, from secured for unsecured into secured, if you will. If you have a home, because of COVID, housing skyrocketed. And so now you probably have, if you own the home, you probably are sitting on some equity and you can look and review and talk to your bank about what kind of rates home equity or a HELOC, home equity line of credit that you could acquire.

Peter Boulden
And typically they're tied to prime, but right now, again, I'm in just some research I've done, you know, it's probably in the 3.7% rate, which doesn't smoke the rate of probably where you are in your student loans. Again, I don't know, but maybe it does, maybe it doesn't. If you're in the 6% and unsecured debt, and now you can use a HELOC, get out of student loan debt, and lower the interest rate, and then also convert it to a tax advantage debt situation, that is a win.

Peter Boulden
So that is what we're talking about right here, is just taking your student loans, applying for HELOC, getting a better rate, getting a full tax deduction because you can deduct HELOCs and your primary mortgage up to a million dollars. And as long as you've incurred this debt prior to December 2017. Again, that was four years ago. They reclassified it so the home interest is deductible anytime up to $750,000. But if you've been in that house for more than, I guess, let's call it four years now, you're able to take a million dollars. So it was, they were grandfathered into that.

Peter Boulden
So again, it's just an interesting way. I'm not sure from a legality standpoint, if taking a HELOC out at 3%, maybe you have to guarantee that you're actually putting that money into the house and putting on a new deck or a new floor extension or expansion, I don't know. But I was able to take a HELOC without question, convert that into and pay off my student loan, thereby taking the full tax advantage situation, thereby taking and picking from an unsecured debt to a secured debt, and it just made my personal balance sheet look a little better. And then I still kind of treated that as something that I wanted to get rid of.

Peter Boulden
Then I paid down my HELOC, right? Because that was my old student loan. I paid down my HELOC and got out of quote unquote student loan. But again, look into it. It's a tactic. It's something that's really cool. I've explained this to a couple people, a couple friends of mine who have student loan debt, and they still make a fair amount, they could make a good amount of money, they could pay it off, but they just don't want to.

Peter Boulden
So I say, look, why don't you take that and put it into a lower income, and they weren't getting the tax deduction. Convert it, take the full deduction, convert it into lower interest rate, make it securitized. Try that tactic. The people that I've told that have the student loan were like, oh my gosh, why didn't I think of that? This is one of those, why didn't I think of that? We're going to go into the second phase of this podcast, which is something I've been playing with a lot right now, and this is something called arbitrage. And as many of you know, I am very interested in macro finance. I'm very interested in, I think step-by-step, I think very numerically, I'm into crypto, I'm into decentralized finance, all the things. So what I've done recently that I thought would be an interesting play to talk about is talking about arbitrage.

Peter Boulden
Okay, and so this still goes into the same vein as HELOC, but just goes into a line of credit. And banks, after enough time, will give you lines of credit because you've built up enough credibility with them, either in your business scenario or personally. So this is something I've talked about a bank saying, hey, we trust you, we know you're gonna pay it back. Here's a line of credit, no different than your HELOC, which is collateralized with the home. This is kind of tied to the fact that they have good faith in you as a human, or you as your business.

Peter Boulden
So there is a little risk associated with this, and I'm not gonna get into the risk, but I'm gonna just talk about arbitrage, because I think it's a really cool thing to talk about. I think this is a way from leverage and arbitrage are two pathways to creating wealth in your life. So arbitrage essentially is just taking something that's worth, let's just call it $10 and selling it for something that's worth 15. It's the profit we get from the price differences of identical financial instruments on different markets for different forms, right? So taking something in this hand, and if I put it into this hand, it's immediately worth more because it was either sold or converted. So this is something that I've been playing around with. And so this is called the Celsius platform and it's Celsius.network.

Peter Boulden
I'm gonna put in a, I have an account with them. I have a, there's a referral thing. And it'll, if you use that referral code, they'll actually give you free money to just kind of open up an account with them. This is a legit business. It's a KYC, which means you don't just sign up and send the money. It's a legit, you have to give them all sorts of ID and set up an account.

Peter Boulden
But this is a decentralized finance platform, which if you've been following crypto, this is very popular. Here's Celsius. Basically what you do is you can earn money on and lend out your crypto. And I'm not going to be talking about Bitcoin or Ethereum or I'm going to be talking about USDC, which is pegged one to one to the US dollar. So in the instance that the bank told me, they said, here, Pete, we like you. We'll give you $200,000 line of credit because we know that we trust that you're going to pay it back. And we like that you've done business with them.

Peter Boulden
You have all these accounts. We'll give you a personal line of credit. So I've taken that personal line of credit and borrowed at 2.5% interest. And if you see here, I'm on the Celsius website and I can put in their calculator. If I lend $200,000 out converted into USDC, which is again, just a digital conversion, it's backed one-to-one, so all I did with that is took $200,000, transferred it to Coinbase, converted it to USDC, and then sent it to Celsius.

Peter Boulden
So there's three steps, which is, you know, if you don't know what Coinbase is or Celsius, this might be where you stop the recording. But I can kind of walk you through it. So now I have $200,000 of USDC. Again, the asset itself is not risked. It's pegged one-to-one. I can take this $200,000, immediately put it into Celsius, and here's the interest that I'd be earning over the year. So it's $18,545 if you put $200,000.

Peter Boulden
And that's the principal only, meaning this is in addition to the principal. The $200,000 stays and it grows to in a year, so it would be $218,545. So that's in one year. You can see, you can play with this calculator. In five years, it'd be $100,000. In 10 years, it would be well over the principal of what you put in. Okay, so going back to this, I'm going to stay with the example of the one year thing. So here we have the $200,000, it's $18,000 in interest. So the, I'm going to use a calculator real quick. $18,545 divided by 12 is about $1,545. Now I'm going to go back to the scenario of saying that the bank lent me money at $200,000 at 2.5% interest. The interest on that, if I hit calculate, is about $416 a month. That is for an interest only mortgage. So that is the cost of capital that is created from borrowing this money from the bank. I have to pay them back the $200,000 and they will bill me $416 a month for the cost of using that money. So now I've sent that money over to Celsius, which is now earning $1,545.

Peter Boulden
So the same dollars, the dollars that the bank is letting me use for $415, Celsius is getting me $1,545 a month for the rights of using. And people are gonna say, well, how is that being done? How are they paying you 8.9% interest? Well, they're micro lending and fractional lending and super fast and bridge loaning on, because it's DeFi, things are happening very quickly and they're rewarding you because people are needing startup loans, whatever it may be. So the delta or the arbitrage, well, really the delta on creating this, if I deduct this amount minus the 416, you can see that every month, just by taking an asset from my left hand and putting it in my right hand, there's a delta or a gain of $1,129.

Peter Boulden
So again, this is something that I've done. It's something that, you know, obviously it's a little bit more technical in its application because you're having to, A, have the rights to getting a line of credit from a bank. B, you're having to know how to get a Coinbase account and wire it in and convert it. C, then you would get a Celsius account and then transfer it in and start earning interest. And then D, you'd have to have a little bit of tolerance for risk, meaning that there is a chance, like who knows, there's risk with everything. There's risk with your bank account, that there could be some kind of hack or fraud or whatever. And people always think that the money in their bank is safe, safe, safe.

Peter Boulden
If you look into that as well, look at your banking bylaws, that's not always the case. Yes, there is some FDIC insured money, but that only applies to a certain amount per account. But anyway, there's risk in everything. There's risk in doing nothing even. But it was an interesting thing that I wanted to disclose to everybody and something that I've been experimenting. It seems to be working really well. It's almost kind of a, you know, I wouldn't call it free money because there is something to do.

Peter Boulden
But it's, again, taking money from my left hand, putting it in my right hand, and taking the delta of those interest rates and making some income. That's it. I hope everyone enjoyed this discussion. I will say if you're not logged into or not a member of Bulletproof.Dental, this is where some of these things go down. I said in a podcast today, I can't believe that we provide that platform for free because so much goes down just to educate and help your fellow dentists. If you're not a member of Bulletproof.Dental, that is our mighty network. I would definitely encourage you. And also we are launching our new summit, which we're not going to start promoting yet because it's not all the way until June, but we just signed the paperwork today to be in Nashville June 2nd through the 5th of 2022. That's it for today. Hope everyone has a great one and we'll talk to you soon.

Transcribed with Cockatoo