PhD/Student Loan Repayment - is it a good idea?

Captain_Starlight

Hi, All ... Need a bit of advice. Son's just been awarded a PhD Studentship which gives him a tax-free income for (possibly) 3 years. May only be for 1 or 2 years, but that's a side issue. He has, however, got the inevitable undergrad student loan, which is accruing interest at some disgusting rate (way above the savings rate). We've accumulated enough savings in his name (in Premium Bonds) to allow him to pay off his student loan in full ... should he do this, or should he let it run until he's earning? Or should he pay off a bit of it ... or just cash it all in and get drunk, on the basis that we're all doomed anyway?!!

Any advice will be pathetically and gratefully received!:rolleyes:

Oldernotwiser

The Student Loan is not at "some disgusting rate" but actually at the rate of inflation and, therefore, far lower than any other normal form of credit.

He will only need to start paying it off when he earns over £15,000 and only a small percentage of his earnings over that. Once you have used your savings to do this you will lose all flexibility and never be able to get them again, either for yourselves or any future travel or property purchase he may need. The normal advice is not to repay a Student Loan early because of the above points.

omelette451

Oldernotwiser wrote: »

The Student Loan is not at "some disgusting rate" but actually at the rate of inflation and, therefore, far lower than any other normal form of credit.

He will only need to start paying it off when he earns over £15,000 and only a small percentage of his earnings over that. Once you have used your savings to do this you will lose all flexibility and never be able to get them again, either for yourselves or any future travel or property purchase he may need. The normal advice is not to repay a Student Loan early because of the above points.

I agree entirely. Martin has a page on this, and I for one am perfectly happy to trust him and his advice, so while he says 'it's the last thing you should do', it'll be the last thing I'm going to do. The premium bond (equivalent) interest rate may well be lower than the rate at which interest is applied to the loan, but if you put that money in a proper savings account he could easily get at least 3% on it, which beats the student loan rate. The savings interest would probably by paid tax free, though of course it depends on the exact tax status of his stipend.

celyn90

I would hold onto it for a bit too - if only because quite often a PhD will run longer than the funding you have. My former supervisor makes everyone do 4 years for example rather than 3, the final year being completely unpaid.