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

Northern_girl_2

Donal wrote: »

I'm really struggling to see the logic in not paying it off soon, surely the interest keeps building up cumulatively?

I'm earning £14,500 at the minute and would love to set aside money each month to pay it off, but is there really a more sensible way of dealing with it?

Yes the interest will build up comulatively so if you aren't paying more than the monthly interest amount the loan will never reduce.

BUT, and it is a big but, this does not mean overpaying is the most sensible thing to do. The reason people advise not paying student loans off as a priority is because the interest rate is lower than you could receive from a good savings account.

That means that if you put any optional overpayments into a decent savings account (e.g. an ISA at approx 6.5%) then it will earn you more than making the same overpayment on your student loan (at only 4.8%) would save you.

Basically, unless you have no debts, never intend to take on a mortgage and, for whatever bizarre reason, don't want to have any savings then there is no point overpaying your student loan.

The only reason you might choose to is if you know you would just 'waste' the money that you could make on overpayments rather than put it in savings. That comes down to will power though rather than for purely financial reasons!

Oldernotwiser

kerrij wrote: »

Thanks:T !



Would it be cheaper to simply pay my minimum amount each month as i have just started to this month, for the next twenty five years or whatever until they cancel it, than to actually pay the amount back in full?

Does anybody know a way other than calling them where i can found out after how many years it's cancelled? I can never get through to them, and they're not very helpful when i do!!

To answer this second question you would need to tell us the years for which you took out the loans.

Oldernotwiser

Northern_girl wrote: »

Yes the interest will build up comulatively so if you aren't paying more than the monthly interest amount the loan will never reduce.

BUT, and it is a big but, this does not mean overpaying is the most sensible thing to do. The reason people advise not paying student loans off as a priority is because the interest rate is lower than you could receive from a good savings account.

That means that if you put any optional overpayments into a decent savings account (e.g. an ISA at approx 6.5%) then it will earn you more than making the same overpayment on your student loan (at only 4.8%) would save you.

Basically, unless you have no debts, never intend to take on a mortgage and, for whatever bizarre reason, don't want to have any savings then there is no point overpaying your student loan.

The only reason you might choose to is if you know you would just 'waste' the money that you could make on overpayments rather than put it in savings. That comes down to will power though rather than for purely financial reasons!

The other reason for not paying back more than you need is that you will never be asked to pay back your student loan beyond your means. If you pay it back and then in 5 years time you have to take out a loan for a car, you'll have to pay this back even if you've been made redundant or are at home raising children. If you put any money that's available for voluntary repayments into a savings account, you may not need the car loan and the student loan can be deferred until your salary goes above the threshold again. NO other form of borrowing gives you this degree of security and at only the rate of inflation!

mjoyeux

I've been working now for two years since I graduated.

(Finished Uni in 2006, graduated Nov 06, started work in Sept 06)

I earn over 15k (19k last year, 21k this year, 23k next year)

But the SLC hasn't taken a penny from me yet. I know I owe about £18k.

Should I stay quiet, or contact them? Or just put aside £50 a month into an account "just in case". Or do I contact them through payroll at my place of work. I did tick the box which said "Student Loan Payment" when I signed my contract...

jamtart6

mjoyeux, they will probably contact you i would have thought. I would start putting money away just in case anyway.

thanks northern_girl and satriales for explaining what the article means... i see Martin's point now

Oldernotwiser

mjoyeux wrote: »

I've been working now for two years since I graduated.

(Finished Uni in 2006, graduated Nov 06, started work in Sept 06)

I earn over 15k (19k last year, 21k this year, 23k next year)

But the SLC hasn't taken a penny from me yet. I know I owe about £18k.

Should I stay quiet, or contact them? Or just put aside £50 a month into an account "just in case". Or do I contact them through payroll at my place of work. I did tick the box which said "Student Loan Payment" when I signed my contract...

Although it may not be your fault, if I were you I would contact the SLC asap. If you do decide to let it ride, I'd put consideably more than £50 away to cover it as, by my calculation, you should already have made payments totalling nearly £1,000 and your normal payments for next year should be about £60 per month.

Donal

Northern_girl wrote: »

Yes the interest will build up comulatively so if you aren't paying more than the monthly interest amount the loan will never reduce.

BUT, and it is a big but, this does not mean overpaying is the most sensible thing to do. The reason people advise not paying student loans off as a priority is because the interest rate is lower than you could receive from a good savings account.

That means that if you put any optional overpayments into a decent savings account (e.g. an ISA at approx 6.5%) then it will earn you more than making the same overpayment on your student loan (at only 4.8%) would save you.

Basically, unless you have no debts, never intend to take on a mortgage and, for whatever bizarre reason, don't want to have any savings then there is no point overpaying your student loan.

The only reason you might choose to is if you know you would just 'waste' the money that you could make on overpayments rather than put it in savings. That comes down to will power though rather than for purely financial reasons!

I really think I'm missing the point here Northern_girl, but I'm appreciating your help!

Surely after a year of saving money in an ISA and collecting the interest, the interest on the student loan would be higher, making the savings a bad idea? My interest is currently around £90 a month due to the size of the loan.

moph3kjh

I have two degrees and I now have a 35,000 student loan debt!! My average salary for the rest of my working life will be £40k. My minimum payment at 9% over £15,000 will be therefore be £2250 per year. If I pay off this minimum rate and no faster as recommended by martin until it is wiped at 65 years (I am now 28) then this means I will have paid up to £50k in this time surely? I have recently inherited £15,000 which I will save in a high interest or should I use it to pay off a lump??? I need to buy a car in the near future and buy my first home.. any advice?

Oldernotwiser

moph3kjh wrote: »

I have two degrees and I now have a 35,000 student loan debt!! My average salary for the rest of my working life will be £40k. My minimum payment at 9% over £15,000 will be therefore be £2250 per year. If I pay off this minimum rate and no faster as recommended by martin until it is wiped at 65 years (I am now 28) then this means I will have paid up to £50k in this time surely? I have recently inherited £15,000 which I will save in a high interest or should I use it to pay off a lump??? I need to buy a car in the near future and buy my first home.. any advice?

Well, the reasons are pretty much what I've said above, which is that you never know what the future might bring. You could be made redundant, want to work part time, need to stop work for childcare reasons, become ill, anything really! In any situation where your income goes under £15,000 then you don't need to make any payments. Compare that to taking out a car loan or any other borrowing and you'll see that you'd be in trouble with repayments, whereas you won't with a student loan.

If you use your inheritance to repay part of your loan, you'll still be making the same repayments to the SLC and how long will it take you to save that amount for a house deposit?

Matari

Hi

I am a mature student - went to uni at the age of 37 after working and paying tax since I was 16, so I am extremely irritated by my student loan as I have already paid into the tax system. And, despite getting a 1st class honours, I am now earning the same annual salary that I earned when I left my job in 1998 to go to uni. Despite this, I haven't regretted it as it did change my life.

However - my loan is approx £11000 at the minute and for two years running when my statement came, I noticed that they hadn't taken the money off that I had paid to the inland revenue for that year. So the interest was quite high. When I phoned them, they said that the Inland revenue hadn't informed them of my payments. So I phoned the inland revenue and they didn't know what I was talking about and said to contact my employer. Eventually in both cases I photocopied my P60 and sent it to the SLC. It worked last year; am still waiting this year. So my advice is to check that any payments you have made have been deducted from the outstanding amount BEFORE they add interest.

Finally, I know Martin's advice is to not pay it off as it is the lowest cost debt, but when I get my statements and, due to the interest, I have only paid off £30.00 a year, it gets me down.