Time to pay off student loans?

unhealthyman

Well, given the financial hubbub going on, what with increasing inflation and reducing rates from banks (and the fact that all my money is currently floating around somewhere in Iceland) has it become sensible to use savings to pay off student loans?

My student loan charges interest inline with inflation, which is currently 4.8ish% and looks set to rise.

Ignoring ISAs for the moment, a decent savings account could get me 6%, but I'll get taxed on that.

It would still seem sensible to keep a bunch of savings for when times are tough seeing as I'll never be able to borrow money at such good rates again, but apart from that is paying off student loans now a more sensible option? If not now, at what point does it become a sensible option - at what inflation rate should I start paying it off or what minimum interest rate savings account beats the interest charged on my student loan?

ExBanker_2

I thought as a student you could register for tax free savings? Therefore it would be economically benefical for you NOT to pay off the student loan..

Lavendyr

Student loan interest rate for Sept 08-Aug 09 will be what RPI was in March 08, i.e. 3.8%, and there are still many accounts out there which earn more than this even after tax.

So no, don't pay off for the time being - enjoy the relatively low rate of inflation for the next year at least. After that, things might change, depending on what RPI reaches in March 2009 (this will determine the rate on student loans from Sept 09-Aug 10).

HTH

unhealthyman

Lavendyr wrote: »

Student loan interest rate for Sept 08-Aug 09 will be what RPI was in March 08, i.e. 3.8%, and there are still many accounts out there which earn more than this even after tax.

So no, don't pay off for the time being - enjoy the relatively low rate of inflation for the next year at least. After that, things might change, depending on what RPI reaches in March 2009 (this will determine the rate on student loans from Sept 09-Aug 10).

HTH

Ah - cool, good to know. I'd forgotten that it was based on March 08 rates.

ExBanker wrote:

I thought as a student you could register for tax free savings? Therefore it would be economically benefical for you NOT to pay off the student loan..

I'm a graduate now So I can get an ISA like everyone else. However, my ISA for the year is full, so I'm thinking what to do with the rest of my money.

avantra

unhealthyman wrote: »

Ah - cool, good to know. I'd forgotten that it was based on March 08 rates.



I'm a graduate now So I can get an ISA like everyone else. However, my ISA for the year is full, so I'm thinking what to do with the rest of my money.

Fill your boots with index linked certificates from NS&I

gozomark

unhealthyman wrote: »

My student loan charges interest inline with inflation, which is currently 4.8ish% and looks set to rise.

inflation is set to plummet, not rise - will be 2% in 12-18 months time

Masomnia

How deflation would affect the student loan rate is an interesting question!