So, this student loan, right...

[Nitefly]

IIRC you are just about to start teaching or have just started.

Until you get your feet firmly on the ground there is probably more immediate things you do could do with your money, such as paying towards a much needed car (for example).

Plus you can make a gain that is higher than your interest on your debt if you invest your spare cash.

I really wouldn't bother paying it off unless you really do have oodles of cash lying about.

EDIT - I was right

 

[chriscubed]

Almost all advice that I've seen says it's not worth paying back.

It's a pretty rare situation that you can't find a better savings account than inflation. Given that fact, I can't see why you'd want to pay it back any faster than you have to.

Aside from that, you never know when you might need access to some money, and if you paid back your student loan and now have to take out a loan at say 8% interest, you will kick yourself.

 

[[TW]Fox]

If you're never going to get a mortgage then pay it back ASAP.

No, do not do this!

Read the link the other guy has posted. For post 98 loans the interest rate seems fixed at base rate + a percentage and NOT inflation?

This is where it gets complicated. The rules say that interest on these new-style loans will be set at the LOWER of the previous March's RPI figure (4.4%) OR effectively the Bank of England base rate plus 1% point, which is 1.5%.

Simple - DO NOT PAY IT OFF. Do not listen to the people in this thread banging on about inflation.

 

[Dinomania]

The inflation issue is a red herring.

I apologise gentlemen - I presumed my loan was based on inflation only, BUT I have just seen on http://www.moneysavingexpert.com/loans/student-loans-repay

This is where it gets complicated. The rules say that interest on these new-style loans will be set at the LOWER of the previous March's RPI figure (4.4%) OR effectively the Bank of England base rate plus 1% point, which is 1.5%.

So it's growing rather slower than I thought it was. Which is a relief!

 

[[TW]Fox]

The best thing to do is forget about it and get on with your life. You'll either get old enough that it gets wiped off, or you'll pay it back through deductions.

 

[The Halk]

Pay it back if you won't need the money. As the above two posters say there's things that might appear.

If you don't need the money it's best to pay it back than muck about with savings accounts.

But whatever you do keep at least 5K or so spare just in case something comes up.

Moneysavingexpert is not always good advice. They often advise you to go down complicated routes which have pitfalls. Or down routes where you need to keep an eye on things or you'll lose way more than you stand to gain.

 

[[TW]Fox]

Pay it back if you won't need the money. As the above two posters say there's things that might appear.

If you don't need the money it's best to pay it back than muck about with savings accounts.

But whatever you do keep at least 5K or so spare just in case something comes up.

Moneysavingexpert is not always good advice. They often advise you to go down complicated routes which have pitfalls. Or down routes where you need to keep an eye on things or you'll lose way more than you stand to gain.

Sorry but this is all rubbish.

Do not pay it back - because the interest rate on it is ridiculously low.

Just leave it.

Putting money into a savings account is not 'mucking about with savings', everyone should have a savings account anyway

 

[Dinomania]

Hah Fox, you beat me.

Trust me to forget all the detail of my own financial arrangements...

..I think my compromise will be that I save enough of a lump that I feel comfortable with say, not having a job for a year, and then if I really want to throw money at the loan, I will.

This thinking comes about now because I'm soon to receive some injury compensation - and I want to put it to best use.

I'm also aware with this PGCE year I've increased my loan yet further, and am guiltily starting to think I applied to loan more than I needed (especially since the government gave us budding physics teachers £9k tax-free to do the course). I'm managing to put some of it away, implying I should never have loaned it in the first place...

 

[The Halk]

Sorry but this is all rubbish.

Do not pay it back - because the interest rate on it is ridiculously low.

Just leave it.

Your advice is the rubbish advice.

Do not muck about with savings accounts trying to gain a little bit of money. It's a lot of hassle and it's not worth it.

Hang on to the money if you think there's a chance you might need it, even a remote chance. If there's no reason to hang on to it, pay it back.

 

[[TW]Fox]

Dont think about it like that - just put it away.

The mortgage thing is irrelevent as well, although its true that the reduction on disposable income might change your application status, it wont change it as much as having spent a £20k house deposit on paying back a student loan rather than having it there as a deposit.

Having a bigger deposit - ie your savings - will have a far more positive effect on a mortgage application than having what, 50 quid a month @ £22k a year more income after tax.

 

[The Halk]

Dont think about it like that - just put it away.

The mortgage thing is irrelevent as well, although its true that the reduction on disposable income might change your application status, it wont change it as much as having spent a £20k house deposit on paying back a student loan rather than having it there as a deposit.

Having a bigger deposit - ie your savings - will have a far more positive effect on a mortgage application than having what, 50 quid a month @ £22k a year more income after tax.

Well, I certainly agree with that advice.

 

[[TW]Fox]

Your advice is the rubbish advice.

I'm sorry, but no. You are advising her to take action and repay a loan that, in real terms, is DEPRECIATING IN VALUE. Each year she owes LESS IN REAL TERMS before any repayments are taken into account.

Do not muck about with savings accounts trying to gain a little bit of money.

Muck about with savings accounts? It isnt a dark art! It's quick and simple. And you dont do it to 'gain a bit of money' you do it because it's a prudent thing to do and crucially RETAINS YOUR ACCESS TO THIS MONEY.

 

[bsoltan]

I have enough money to pay off my student loan right now between my ISA and my current account.

Instead of paying it off I'm opening a savings account at 2.9% to put in any money that I can't put into my ISA as I've already paid in the 2010-2011 installment.

I'm then opening a regular savings account at 4% and depositing the max of £250 a month from the other savings account.

In addition to my ISA at 2.8% I will be earning interest much higher than my student loan is incurring, while at the same time paying off my student loan in the regular installments.

It isn't that complicated and doesn't require regular checks, once it is all setup it will look after itself and ensure that I'm making the most from my money at the current time.

Sure 12 months down the line the accounts may not be as good if they change their rates but it only takes a few hours to work out where the best place to keep your money is and then a few days to setup accounts and transfer the money.

Where things are at the moment I don't see any point in paying off the student loan any faster.

 

[[TW]Fox]

Even if inflation goes through the roof you still dont pay it off, because you always pay the lower of either the inflation rate or the bank of england base rate + 1%.

So either the value of your loan depreciates in real terms (ie, the interest rate is lower than inflation) or in cases when inflation is lower than the base rate, the interest earned on a savings account will be higher than the base+1% interest rate on the loan.

Which brings us back again to 'Do not pay it back'.

 

[The Halk]

I'm sorry, but no. You are advising her to take action and repay a loan that, in real terms, is DEPRECIATING IN VALUE. Each year she owes LESS IN REAL TERMS before any repayments are taken into account.

We've already established that inflation has little or no bearing. The difference each year between paying it off and not paying it off is only the difference between the interest rate being charged and the interest rate she earns from a savings account.

Muck about with savings accounts? Are you for real? It isnt a dark art! It's quick and simple. And you dont do it to 'gain a bit of money' you do it because it's a prudent thing to do and crucially RETAINS YOUR ACCESS TO THIS MONEY.

It's not quick and simple. It's full of pitfalls.

You switch your ISA from A to B. Lose 2 months interest.
You check the interest rate with B for your "Cash builder ISA Plus" and you see "Cash Builder Plus ISA 3%" except they list it way down hidden somewhere "Cash Builder ISA Plus 0.25%"
You forget to switch your ISA, or you forget to check savings interest rates, and before you know it you're down to 0.25% interest.

 

[[TW]Fox]

You are making it sound far more complicated than it really is.

Heck I even get more on my current account atm than I'm paying on my student loan

 

[The Halk]

Even if inflation goes through the roof you still dont pay it off, because you always pay the lower of either the inflation rate or the bank of england base rate + 1%.

So either the value of your loan depreciates in real terms (ie, the interest rate is lower than inflation) or in cases when inflation is lower than the base rate, the interest earned on a savings account will be higher than the base+1% interest rate on the loan.

Which brings us back again to 'Do not pay it back'.

It'll always be lower than real interest rates in everything but the short term.

Even ff BoE goes to 3% by end of 2011, and inflation is at 4% then you would be able to easily get 5% on a savings account by that point.

You'll always be able to make more money on savings accounts than paying it back. As long as you do it perfectly, don't lose any time, don't get caught in any switching ISA problems and don't get shafted with dodgy interest rate tricks.

My point is that it's not worth the hassle. So the only reason to hang on to the money would be if there is _ANY_ possibility of needing it.

 

[Kenai]

Paying it off any quicker than the repayments taken from your salary is just utterly pointless when it comes to student loans, Fox has already explained in much better terms than I could why this is.

It is not a normal loan, do not treat it as such, just ignore it, let the payments roll out and carry on with your life. The money is better in your hands than theirs, even if you were losing money (which you won't be unless you manage to find the worst account in the world to put your money in) the amount would be so negligible compared to the benefit of having access to a big lump of savings should you ever need it that it's just not worth doing.

It's not about using savings to 'make money', it's just there are sod all benefits to paying it off early and lots of benefits to having lots of money in savings, so why even contemplate the option with no benefits.

 

[[TW]Fox]

My point is that it's not worth the hassle.

The only point at which it isnt worth the hassle is if you are so fabulously wealthy that you'd never want for the odd £10k here and there. Which applies to nobody here.

So the only reason to hang on to the money would be if there is _ANY_ possibility of needing it.

I can't think of anyone who has no possibility of ever needing 10 or 20 grand. Nobody.

EVERYONE should have savings as a buffer. By not paying off your student loan, you have this. Whatever happens in life, whatever the cards throw you, you've got £10-20k you'd have used to pay your loan off behind you for any purpose you want. Anything. From a new roof to a deposit on a house to a car when yours explodes to medical bills for your sick mother to startup money for a business to spare cash for when you get made redundant and get find a new job.

The list of reasons to have £20k in the bank not in the hands of the government are ENDLESS.

If you are lucky enough to have the money to pay the loan off, it is far, far better in your hands and it will make your life far better, if only through peace of mind.

 

[The Halk]

The odd £10K? How much do you think the interest difference to be gained is? It's going to be more like 0.5% to 1% when BoE gets back to normal. For 1% assuming no slip ups (and the ones I mentioned are very common) it's not worth the hassle and risk.

Of course people need to have savings they can tap into. 20K is excessive though for someone just starting out. 5K as a minimum and 10K as a maximum I would say - unless there's something planned.