Paying my way through the third year - good idea? (SL or Bank?) 27 April 2006 at 11:48AM edited 30 November -1 at 1:00AM in Student Money Saving 7 replies 608 views

TeamMCS

Hey all,

I really hate the idea of taking a student loan on [again], as I can afford to put myself through the third year [inheritence] would it be better to use my own cash to put my self through uni in teh second year and pay myself back?

..or, take out a student loan... live off that and continue to gain interest on both my loan and own cash?


Cheers all

Sillychuckie

I went through the same quandry when going through my years at university. I am in my final year now (3 exams left, and Im done).

I was in the fortunate position of most probably being able to afford everything without taking out any loans whatsoever (over the full 4 years at uni), BUT, in the end, took out the maximum loan the gov't would give me, for all 4 years of my studies.

At the end of the day, a student loan is the cheapest loan you are ever going to get. If you have self control (and I assume, being a money saver on these forums, you do), taking the loan is a good move. The rate you pay back on them is very low and if you simply take the money, shove it into a savings account earning a decent rate, you will make a profit.
This only holds true if you DO NOT SPEND any of the loan.
The moment you start spending it, you stop earning interest on it (but continue paying the gov't interest).

You won't need to pay it back until you are earning over a certain amount and even then, you pay it back slowly. All the while, the loan money you have will be earning money in a high rate savings account. The way I see it, if you have the self control to invest it wisely, its free money from the gov't (the interest you earn is free, anyway).

My advice: Take the loan. Invest it... make sure you ALWAYS use your ISA allowance each year (well, the 3k cash ISA anyway). Keep the rest in a decent savings account earning 5% or more. If you can manage it, use a few regular savers (10% - A&L, 7% Halifax) that are great for students. If you do not work (as most students don't), make sure you register yourself to receive GROSS interest on all these accounts (except ISA of course, already gross).

Do not however be a 'typical' student and blow the loan on too many nights out.
In the end, you will be quids in, I'm certain of that.
So long as the goverment keep the rate as low as it is now, the best thing you can do is take the max loan out, save it, and repay it as slowly as possible. To maximise your earnings, shop around for the better savings accounts, register for GROSS interest, and SAVE SAVE SAVE.

Good luck.

TeamMCS

Interesting, thanks a lot.. That is essentually what I've done this year. Put the majority of my overdraft and student loan into a savings account and gain interest....

Sillychuckie

Yeh, those interest free student overdrafts are also a godsend.
They only like you to have one, but I abused quite a few of those too (and still am).
I dont graduate until July/August, so I dont think I'll have to repay them until then. The interest I have from them over the 4 years however is all a welcome contribution. I'll have to read the T's + C's again, but unless the banks ask me to repay them, I won't even mention it... (unless the T&C's specify I must take it upon myself to repay them). I'll have to look and see.

You seem 'on the ball' money wise. Go for the loan and invest it in risk-free savings accounts. Good luck with the rest of your studies.

[Deleted User]

Depends on your plans post-graduation... do you want to buy a car/house/go travelling?

Would you prefer to have 3000 in the bank and someone taking money out of your account each month without your control (the student loan) or control your own money more?

It's a good idea to put your overdraft in an ISA as that's interest free, but the student loan is still a 3.2% loan.. Compare that to a 4.5% ISA - you aren't really making much money on it. Plus, the student loan rate isn't fixed and can go up.

Personally, i'd go for the debt free option, put your inheritance money somewhere not so easy to get to like a bond and give yourself an allowance for the year.

melancholly

have a read of this post:
http://forums.moneysavingexpert.com/showthread.html?t=185964

says some interesting things - worth taking into account before you decide

Sillychuckie

I have to disagree with ringo and stick to my guns.

If you don't like the idea of being 'in debt', or having the loan company deduct money without your control from your earnings, pay the full loan back the moment you leave university.
I am still contemplating doing this.

Either way, you have still made 3 (or in my case, 4) years worth of profit on the interest.
The student loan is 3.2%, and I shove it all into a 5.5% ISA.
I know the margins aren't huge, but if you are a true true money saving expert, you'd be jumping up and down to get your hands on such a loan.

Up to you really. I'd advise, always go for the loan. Whether you repay it immediately, or do the long slog as you slowly earn is another question.
Clearly the margins are better if you pay it off slowly, but there is that element of 'less control' and a requirement of trust in the SLC to deduct correct payments.
Either way, the loans a good'un, even if it is just for the 3 years.

TeamMCS

Thank you all very much for your replies, I'm going to give it a long hard think and descide what to do.

I'd hate to "need" to spend the loan and end up, ultimately in more dept than I needed.