Facing up to Student Debt - Advice on SLs needed please

moneysavinmonkey

lynzpower, your post confused me a bit but this is how I understand it.

Say you had a SL of £10,000 @ 3% but you also had £10,000 cash in an ISA @ 5% then as long as you were making more interest each month on your cash than the interest on your SL then it's better to keep money in the ISA and just pay off the minimum on your SL.

If you only have £5,000 cash then if you used it pay off your SL you would only save yourself half the interest each month (you would be paying interest on the remaining £5,000)
If you stashed the £5000 cash in an ISA it should be making half the amount of interest as is being added to you debt. Your ISA will not completely negate the interest as you haven't saved enough money yet- overall you still have a debt of £5000 so rightly this should still be costing you.

Anybody correct me if this is wrong!

Tried to ring SLC last night but they were closed by the time I got home, will see if I can get through at my lunch break today.

Also looked at a few ISAs/Savings Accounts;
My next question; If SL rate is 3.2% what is the minimum AER on Savings I need to get bearing in mind I will pay tax on interest from savings.

Thanks.

Heth_2

My husband has a student loan, and it isn't our priority to pay it off as soon as possible. Having just bought a house then I think it is more important for us to build up some safety net savings, so that we could cope if something went wrong with the house or our jobs. While we could overpay the student loan at the moment, that money would be 'lost', and if something went wrong we would be rather stuck. Better for us to save now so that if they car service is really expensive we can pay it. We'll also start overpaying the mortgage soon as well, but if we did loose one income we could always use that overpayment to take a payment holiday.

CLAPTON

3.2% equates to a gross AER of 4% if you pay tax at the standard rate and 5.3% if you are a higher rate tax payer

if you save in an ISA of course the interest is tax free.

also note the slc 3.2% rate varies from year to year as it is related to the rate of inflation....hadnt seen next years rate yet

so as an example suppose you have £5000
if in an isa at 5% you would earn £250 per annum
if in an ordinary a/c at 5% a basic rate taxpayer would earn £200
your SLC loan of 5000 would cost you £160 approx

morg_monster

Lynz - have a look at this thread here

http://forums.moneysavingexpert.com/showthread.html?t=178304

I was trying to explain that very point to the OP, she thought you would have to earn over £35 interest a month to be better off putting your money in an ISA. At the end of the day any amount of money X you have, will make you more interest if you put it in your ISA (makes you 5% interest on X) then if you put it towards your SL (saves you 3.2% interest which would have been paid on that amount X). Hopefully if you read through the post you will understand it - the OP of that thread did in the end but it can be hard to get your head around.

lynzpower

nah I understand it now thanks a lot to clapton, stright to the point, that was what I missed

but isnt it the case if you are earning over 15 you have to be paying it anyway, you dont get the option of ISAing?

CLAPTON

yes once you earn over 15,000 it should be deducted from your salary (starting April after you graduate)

but i thought the issue here was whether you should over pay i.e. with a view to clearing the debt asap rather than at the leisurely pace of the SLC (9% over 15,000) or is it better to save it....clearly views are divided

dinkylou

Moneysavinmonkey,

When I was earning about £20k I was paying back around £50 per month if this helps.

Personally I wouldn't lose sleep over the loan but I would open an ISA and make 'overpayments' as much as you can afford into that ready to repay annually about March/April.

It might also help you to use the snowball calculator (https://www.whatsthecost.com/snowball) to see how much interest you are paying and get a better idea of when it will end if you pay min etc.

lynzpower

CLAPTON wrote:

yes once you earn over 15,000 it should be deducted from your salary (starting April after you graduate)

but i thought the issue here was whether you should over pay i.e. with a view to clearing the debt asap rather than at the leisurely pace of the SLC (9% over 15,000) or is it better to save it....clearly views are divided

Ah!! thats why Ive always got the wrong end of the stick!!!

im not madly overpaying mine as it is, but I took mine from £93 a month to 100 a month and saved a few months off the end, adn that made me happy :beer:

moneysavinmonkey

thanks dinkylou... will have a go at snowballing once get details from SL company of how much I owe.

PS> link didn't work.. found with bit of googling: should be http://www.whatsthecost.com/snowball.aspx

dickybeau

There are 2 main styles of Student Loan.

The older style or 'Mortgage Style Loan' is paid off monthly through your bank acc. The interest rate alters every August and will drop to 2.4 or 2.6% this year. The threshold for commencing repayment is , at the moment, £2011 per month GROSS pay. This also changes every year. If you are earning under this, you can apply to DEFER. If you do not defer, the payments fall due - even if you are earning under the threshhold. If you fail to make payments, you will be pursued and your credit rating will be affected if the matter goes far enough. Do not ignore the debt and always defer if you can. If you are deferred you can make voluntary payments at a level you can afford. If you are not deferred, you MUSTmeet your minimum payment. OR ELSE. Everyone should read the CREDIT AGREEMENT that they signed when taking out the loan. If you move abroad, you can still defer. Most people appear to get into difficulty because they don't defer. If you earn under the threshhold, you can defer every year and, depending on your age at the time you took the loan out, it will be written off around your 50th birthday IF THERE ARE NO ARREARS on the account. If your doctor says in writing that a disability or illness means that you will never work again, your loan will be written off. Otherwise, pay up.
If you do not defer, the debt can mount up quickly and you will be pursued in foreign lands too to repay. The onus is on the borrower to keep SLC informed about addresses and you commit to having a Direct Debit in place for them to take the money when the time comes. Always send mail by recorded delivery because of the huge losses that Royal Mail account for. don't wait to hear if you are deferred, contact them to make sure.

The newer style of loan is paid back via the taxman and the threshhold is closer to £15000 pa. payments are calculated on a sliding scale so that the more you earn, the more you pay. If you move abroad, you will need to negotiate a payment schedule to repay this type of loan. deferment is not possible.

This debt is Government debt and will be pursued to the end. Bankruptcy does not affect it. So don't ignore Student Loans.