Should I invest my student loan?

shellsh0ck

Hi,

I'm a third year student and I don't take out any loans to live off or pay my tuition fees.

With the interest on student loans having increased to 4.8%, are student loans actually worth the hassle of investment in a high interest account? I do however, already have approximately £4000 in student loans from a previous course so I'm concerned about compounding interest.

Can anyone offer any advice?

Many thanks

QuirkyChemistry

The interest rate for the coming year is going to be 3.8% so that's a bit better than last year. You should easily be able to open accounts with a higher rate of interest than that, maybe with Quidco cashback too. So it should be simple to make a bit of money on the loan. The other consideration is if you would like to keep it as a house deposit or something similar as it is almost certainly going to be at a lower interest rate than your mortgage.

shellsh0ck

Thanks for your reply, QuirkyChemistry. I have confirmed that the interest rate has dropped and therefore the investment seems more viable. I am still a little concerned about compounding interest though, since although I could pay back the new loan from the investment, I wouldn't be able to pay back the previous outstanding £4000, which I imagine will have increased significantly with interest from both loans by then.

Flobajob

Shellshock, I don't think there is any reason to pay back the £4000 now even if you can - you will do better if you just stick the money you would be using to pay the loan off with in a Kaupthing account, and then you are making even more money on the interest defecit. There's no need not to take the maximum loan really unless you think that it is simply not worth the hassle for a few hundred £.

Rawhide_2

Does anyone know if the amount of savings a student has will affect the allocation of the amounts that will be loaned by SLC.

Example : Student in London during 08/09 year has been awarded £3145 tuition fee loan and £4855 Standard loan, total = £8000 for year 1. Student then invests £5,000 in Kaupthing or ICIC High Interest Account. During application for loans in 2009 for 2nd year, will the £5K savings (which have to be declared) affect / reduce the amount that will be awarded ?

Thanks

Lokolo

No.

From what I can remember anyway, savings don't have to be declared? Only interest from savings do?

QuirkyChemistry

That is correct. In the section where they ask about your income there is a bit where you put in the amount of money you get from interest on savings. The actual amount in savings doesn't make any difference.