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

Frege

I don't see what the fuss is about here. Student loan interest 4.8%. ISA interest about 6.1%. Therefore it is is better to put the money in the ISA.

stevo1179

I know that I'm morally/legally obligated to repay this debt, though I'm going to do it as slowly as humanly possible (mortgage is far more important). I still resent the fact that is was a loan....if I had gone on the dole at 18 (like countless numbers do!!) instead of trying to better of myself by going into further education I'm sure I would of had far more that the £12,000 that I borrowed. Take into concideration the tax I've paid since graduating it [EMAIL="p@sses"]p!sses[/EMAIL] me off a bit.
Instead of chasing this money from hard working tax payers, the government would do better to get the numerous malingerers of disability and the workshy off unemployment...there are plenty of jobs out there, even if it is flipping burgers for the clown.
Rant over.

Donal

Frege wrote: »

I don't see what the fuss is about here. Student loan interest 4.8%. ISA interest about 6.1%. Therefore it is is better to put the money in the ISA.

My confusion arises from this:

If I was to put my year's worth of planned repayments into an ISA every month, instead of to the SLC every month, then after a year collected the ISA interest and put the whole lot towards the loan, surely I'd be far worse off?

My reasoning is that the debt (£23,000, or around £70 a month interest) will rack up far more interest over that year than I would make with the ISA.

So surely it's a bad idea?

Lokolo

You have to view in a different way.

Say you have £1200 (£100 a month or whatever).

Now using the £1200 to pay off the student debt will lower your annual interest by £57.60. Saving you £57.60 (4.8%).

Now you put the £1200 in the ISA at 6.1% you save £73.20, which means you would have saved £20 more by putting the money in the ISA.

It is quite hard to think this way round when you think, hang on, interest on £23k is a lot more than interest on £1k in an ISA. But you musn't think of the WHOLE lot. Just the amount you have.

Donal

Finally, after several people helping, I finally get it. Finally.

Thanks a million for your help, especially you Lokolo, Martin's article makes sense now! :T

JimmyTheWig

Matari wrote: »

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.

I can see why that would get you down. Lets see if I can cheer you up.

I presume that by the very fact you are posting on here you have the option of overpaying your student loan. Whether that's with a lump sum or with monthly payments I don't know, and it doesn't really matter.

Yes, you could use this money to pay off some of your loan. And yes, if you did that your loan amount would have gone down by, say, £1068 (assuming you paid a lump sum of £1000 at the start of the year and the interest rate is 3.8%) rather than £30.
However, put that £1000 at the start of the year into a cash ISA. At the end of the year your cash ISA will be, say, £1060 (assuming an interest rate of 6%) and your student loan will be down by £30.
Don't just look at your loan statement in isolation. Look at it in conjunction with the savings account that you wouldn't have if you had paid money off your loan. Then you'd be much happier.

JimmyTheWig

Donal wrote: »

My confusion arises from this:

If I was to put my year's worth of planned repayments into an ISA every month, instead of to the SLC every month, then after a year collected the ISA interest and put the whole lot towards the loan, surely I'd be far worse off?

My reasoning is that the debt (£23,000, or around £70 a month interest) will rack up far more interest over that year than I would make with the ISA.

So surely it's a bad idea?

Are you able to pay off your £23k student loan this year?
I don't think so from what's been said.
In fact, even if you can overpay by, say, £3000 you're still going to owe the SLC £20k. So even if you do overpay you will rack up loads of interest!

WastedYouth

Hi, firstly thanks for all the information. One last question, is there any chance the rules could be changed and force repayment faster than previously stated?

Where is there any evidence of this?

Thanks

Chris

kerrij

Oldernotwiser wrote: »

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

I was at university from 2004-2007.

Thanks for your help!

Oldernotwiser

WastedYouth wrote: »

Hi, firstly thanks for all the information. One last question, is there any chance the rules could be changed and force repayment faster than previously stated?

Where is there any evidence of this?

Thanks

Chris

The only evidence I could suggest for this not happening is the fact that when the repayment changed from the old "mortgage style" repayments (pre 1998), the changes were not retrospective, ie. you were on one system or the other, depending on when you studied.

As far as the future is concerned, considering the proportion of the population who must now have a student loan, repaying it faster is not going to be much of a vote winner and would seem to me to be unlikely. Would you really want almost every person who'd been to university over the last however many years up in arms against your party?