Should I repay my student loan or make payments?

enjoiloveify

My question is, should I repay my student loan which has a balance of $4900 or make 120 payments of $57 for a total repayment of $6840?

I have enough cash in savings to pay the loan outright, and have a reasonable amount leftover, and avoid the interest, but I may need the cash for living and further education in the near future.

I am 26, single, I just got my B.S. I cant find a job in my field so I am working construction, and my income is shaky, my future is uncertain. I might have to go back to school for skill training.

I have zero debt except for this loan, i dont have a credit card, the only expenses I have right now are food and car insurance, which is negligible. I live REALLY cheaply, and live with my dad for the time being.

So, should I pay off the balance or invest my money and make 120 payments?

Thanks

RobertoMoir

Hi there,
This is a UK-based site so you may find that people who can offer you good advice about debt from a 'legal' point of view are a bit rare, for example, but you're still welcome here of course.

Anyway, I'd look at the interest vs. the return on the money you've saved if you do something else with it. The interest rates here in the UK are _very_ low right now, which means the cost of interest on a debt may be quite low and the interest money can in a savings account is also low, which makes using the money to clear debt a good idea.

Of course, if you're planning to go back to college for re-training then you may need the money to support you through that? I'd say investing in your own future was a very good use for your money. But then I work in education, so I'm kinda biased in favour of education if you see what I mean.

Regshoe

Using the current UK climate as a background may not lead to the best advice, but some of the general calculations and techniques should hold up.

I assume based on the figures that it's 120 monthly payments not weekly. On this basis I calculate the APR to work out at just under 7.3%. Currently in the UK this would be considered as pretty cheap debt, but it is way more than you would get from any standard saving product.

You say you are currently living with your dad and living quite cheaply. In that situation my inclination would be towards paying off the debt, though you would want to be sure that you aren't suddenly going to need a large portion of this money in the near future, as you would be unlikely (again based on UK markets) to be able to borrow at that sort of rate again, particularly with uncertain income.

Is this student loan a commercial sort of loan, or is it in some way government backed or subsidised? If the latter then there may be some other factors that would be important (e.g. in the UK if you are earning less than £15k pa then you don't have to make loan repayments, though the loan still accrues interest, it doesn't sound like you loan is like this, but I don't know all the facts).

Is there perhaps a middle ground, would they let you pay off say 50% of the balance now, thereby saving some interest charges and retaining some money to hand, or will they let you make a full settlement at some point before the 120 months have expired?

enjoiloveify

I didnt realize this was a UK site, but you are right, the principals should still hold for personal finance.

Yes it is a government, subsidized loan.

I am going to find out if I can pay half of it back, and the rest with payments. That sounds like a good idea.

vera3

I am not a big fan of taking loans and I don't like to be in debt. I would definitely pay the loan ASAP. I think you are lucky to have the money to pay off your debt. Most people don't have that luxury.