Should I Pay Off My Student Loan? 2008/09 article discussion

Chris2685

All I know is that savers are being screwed. Whether it is a ploy to make people spend more money or not, I don't know...

marklee

I think it depends on people's individual circumstances. For example, with the minimum payments, I was due to pay off my loan before August 2009 anyway - so future years' rates don't concern me. With my ISA maxed and paying higher rate tax, I've worked out that I'll save a minimum of £75 by paying off immediately, versus using a best buy savings account.

Given that savings rates are likely to head further south in 2009, before the SLC rate change takes effect in Sep 2009, I would be suggesting that people who are due to finish their repayments in 2009, or even early 2010 (as any positive impact post-Sept 2009 will be offset by the impact of pre-Sept 2009 rates) consider if their post-tax savings rates are really better than their student loan rates - especially if they're paying higher rate tax.

Masomnia

Chris2685 wrote: »

All I know is that savers are being screwed. Whether it is a ploy to make people spend more money or not, I don't know...

It is indeed. The economy is slowing down into recession so we need people to spend more. One reason to cut interest rates is to lessen the incentive to save. So people spend more and the economy will recover faster. Or at least that's the theory.

Don't forget that different loan systems are different. There's little point in paying off a loan that'll be written off soon any way. If in 25 years time a few hundred pounds was written off my loan, I'd be kicking myself if that could've been thousand which I'd missed out on through extra payments.

Also, because the loan is often only paid back once you're earning over a certain threshold if you lose your job/have other difficulties you'll have more savings to fall back on than if you paid off the loan. A mortgage or other commercial loan is nowhere near as lenient.

HangTime

Heh, what a coincidence, I was only just thinking about this today.

The article definitely needs a rework, as it was obviously written at a time when the idea of RPI being significantly higher than the BoE base rate was not really considered seriously.

My situation is as follows:

-Student loan @ 3.8% fixed until Sept 2009
-Tracker mortgage currently @ 3.59%
-No other debts other than a 0% credit card that'll get paid out of salary before the deal ends
-Minicash ISA contributions maxed out for the year (and will be again in the new tax year)
-Basic rate tax payer
-3 savings accounts, all of which paid over 6.5% gross not so long ago, but are now all paying less than 4.75%

Or in terms of relevance to my SL:

-My student loan is currently my most expensive debt
-My existing savings are all paying less than 3.8% net

Having a look around, there are very few 'clean' accounts out there paying over 4.75%. A couple of months ago it was easy as pie to find something beating the SL rate, but no longer.

I'm starting to come to the conclusion that a fixed term deal may be the best option (say the 5.83% AER offered by BM over 6 months) - the fact that the cash is locked away (at least if you want to get the full interest) isn't actually that bad when you consider that the alternative (repaying the SL) is even worse - the cash is gone forever.

The real problem with this type of thing is that it's all dependent on being able to predict what the RPI figure will be in March. If it drops off then the SL interest rate will consquently fall in September, meaning that repaying the loan would have been a 'mistake' (assuming that savings rates don't plummet still further...)

Lokolo

Indeed but it means you lose money over the 2 years, how many years have you gained money? In the longterm its a lot better not to pay off student loan as you can get profits from future rates.

If you are willing to lose money for 1 or 2 years but gain in 6 or 7......

zavvi1979

The interest rate on Student Loans for Income Contigent loans only has dropped to 3% from 5/12/08 according to the news on the student finance direct website, it's for loans taken out after 1998 only and not the older mortgage style loans. Apparantly the Student loan interest rate can't be more than 1% more than the bank of England base rate and although it's linked to CPI and RPI this in the regulations.

Lokolo

zavvi1979 wrote: »

The interest rate on Student Loans for Income Contigent loans only has dropped to 3% from 5/12/08 according to the news on the student finance direct website, it's for loans taken out after 1998 only and not the older mortgage style loans. Apparantly the Student loan interest rate can't be more than 1% more than the bank of England base rate and although it's linked to CPI and RPI this in the regulations.

http://forums.moneysavingexpert.com/showthread.html?t=1335321

covered.

Pathologic

It has obviously not been envisaged in Martin's piece or on this thread so far. There is a small possibility of the UK ecconomy sliping into a deflationary spiral. Does anyone know what the rules might be on student loans in that environment.

In deflation money accrues buying power rather than losing it, so debts become harder to pay off over time. Savings also gain even with zero interest rates.

In my simple universe the SLC would write off a proportion of the loan to keep track with the buying potential of the debt.

Does anyone know the true situation?


Regards,

Path.

Chris2685

I would imagine the government would just try to screw us as much as they can...

Oldernotwiser

Chris2685 wrote: »

I would imagine the government would just try to screw us as much as they can...

The SLC is not the government!