Student Loans: "Should I pay mine off?" article Discussion Area

sly_dog_jonah

Hi mattsaze,

I think you need to take a look at Martin's Article on interest rates

He's the expert, I'll let him do the talking!

appolonicon

We are in the fortunate position of being able to pay off our son's loan (we are retired and could do it out of pension cash commutation).

Leaving aside the question of whether it would weaken his character and destroy his determination to survive on his own, my query is this: Would this payment be liable to inheritance tax if my wife and I die within seven years and have fully used all the £3000 per year allowable transfers to our son? And if not, would there be any capital gains tax liability for him? Any tax accountants out there? (This seems to be an unknown area for the two accountants I have spoken to).

Thanks in advance.
Appolonicon

si1503

Great article, i am certainly in no rush to pay mine off, much smarter to just pay off the minimum rate out of your earnings and have savings invested elsewhere. As the article says, this is the one case when you can actually invest money whilst having a loan debt.

Jordie1983

Hi all.

I have a student loan of about £12000 which i am currently not paying anything towards, so its going up by 2.4%, I also have a mortgage which i am only paying off the interest on.

If i have a little bit of money a month to put somewhere what do i do??

1. pay the interest on the student loan so that it stops growing?
2. Pay more on my mortgage?
3. or put some money into a savings account??

Any help is much appreciated.

Jordan

sly_dog_jonah

Jordan, it depends on the interest rate on your mortgage versus the interest return from savings, and whether you are a taxpayer (basic rate or higher rate).

You shouldn't do option 1 though, as you can definately make more than 2.4% after tax on a decent savings account, more so if it is a mini cash ISA and the interest is untaxed.

Option 2 could be pursued if the mortgage is flexible (allowing you to take back the overpayments in future if you needed to), and if the mortgage interest rate is higher than your net savings rate you'd be much better off in the long term by paying off the mortgage quicker.

mattsaze

You may be able to make more than 2.4% interest, but if your loan is £12000 the 2.4% accruing on that is surely going to be more than what you'd make if you start saving the money now. If you pay £50 a month in a savings account (instead of repayments) from now, what you make on a good interest rate surely isn't going to be more than what the loan has increased by? Would it not be better to start to pay off the loan so as to keep it to a minimum?

I understand that if you can pay it all off in one go that it's better not to bother and to stick the money in an ISA, etc.

What do other think?

P.s I'm not a stooge for the SLC, who in my opinion have a disgraceful customer services and there aint much we can do about it, as there's no alternative.

Jordie1983

Thanks people for the advice.

I think i will start to pay the interest on the student loan, that way at least it will stop growing!!!

After that if i have any more money on a monthly basis i will add it to the mortgage.

If at any time i get lump sums from wherever then it will go in a good savings account.

Thanks again, all the advice is a great help.

si1503

well interest of 2.4% on 11,000 would still be £264

interest of 2.4% on 12,000 is £288, and interest of 5.3% on 1000 is £53, so 288-53= a loss of £235

so IMO it is a better choice to save/focus on mortgage and pay off the student loan later

mattsaze

Agreed, but if you don't have a mortgage, other debts, should you also pay off loan?

JenIttels

delorean wrote:

I'm going to be moving around quite a lot in Canada and so will have periods of unemployment and a change of address quite frequently.

Anyone got any advice please on what to do now? Many thanks.

Hey. I'm moving to the USA for three years in January. I'm going to be unemployed for a while but in preperation for getting a job I plan to leave a UK bank account over and divvy up my money to pay the SLC direct debit from there (hopefully at times when the dollar isn't too bad). Can you not do something similar?

Whatever you do make sure you do save/pay the amount you earn over the threshold as they can find you eventually and will probably charge you massive amounts for not paying the minimum.

I contacted the SLC to ask them what I need to do and it pretty much seems like it's up to us to prove our earnings when we get them and pay the usual threshold amount.

Make sure you contact them in writing about everything and keep copies of all the correspondance and payments as the SLC are notorious for messing things up (well they are totally understaffed).

My advice is carp but - contact the SLC and get the low down on it all. Try to do it in writing so that you can keep a copy!

PS we'll end up losing out a little because of dodgy exchange rates and god know what charges for wiring the money to the uk account but at least we'll be living it up across the pond!