Student Loan Query

Kim_Possible

Hi, I hope Im posting in the correct section.

I have a student Loan from 5 years at Uni (Sept 03- July 08), as follows:

03-04 £4000
04-05 £4095
05-06 £4195

Initial Loan total without any interest : 12,290

[No St Loan taken in other years at Uni]

Ive now graduated 2.5 years. At the peak of the loan inc interest over the years i estimate the total to have been £14,000.

According to the Student Loans calculator to Mar 10 total owed 12,539.29

I estimate from Apr 10- now I have made payments to the value of £1,422 bring the total owed to £11,117 [estimate]

My query is, I have been making monthly payments to SLC but is this the wise thing to do?
Should I try and pay off the loan or save the money in a bank account?
Then again if I did put this money in a bank account should I at least make a payment to pay the interest on the loan?

P3dro

If the rate you getting from the bank is greater than the interest your paying, put it all in savings and don't pay anything more than you have to (9% of earnings over 16k)

Kim_Possible

Thanks for the reply.
I should have mentioned I already earn just over the threshold. I pay roughly 8.00 pounds out of my salary to slc.

I would hope to find a degree related job and thus a better salary. In turn increasing the contribution from paycheck.

Also, currently live with parents but would like to move out and hopefully own house in near future- job permitting. So Mortage would be in the picture.

I can see the sense in puting the money in a higher interest savings account but at what point do I stop saving and start to pay it off?

Oldernotwiser

Kim_Possible wrote: »

I can see the sense in puting the money in a higher interest savings account but at what point do I stop saving and start to pay it off?

Simple answer - when you need to, not before.

whitfreak

In short when you feel like it.

At a guess 99% of graduates just pay off what they have to. And just keeping to the T&C's is all you need to do.

My main arguement against over repayment of loans is that any over payment you make you cannot get back. And you would be overpaying on a loan where the repayments are linked to income. Lose your job, the repayments stop. But take a bank loan (car/mortgage/etc.) and lose your job you still need to find the repayments from somewhere.

The student loans are also cheaper than any of loan, so using it (or the money for the extra-payments) to reduce what you need to borrow on more normal loans will save you alot more money in the the long run.

So when do you stop saving and start paying it off? My advice is you don't. Use the overpayments money to reduce other debt, reduce the need for loans, or to build up a safety net or house deposit.

Kim_Possible

Thank you all for your advise.
Tonight, I have opened up a Post Office online high [ish] interest savings account at 2.9%.

I have decided now that I have reduced my loan to less than the initial amount I borrowed [due to overpayments made previously].

I am going to pay the £200.00/mth that I was overpaying to slc into this account as its nearly twice the interest rate slc charge.

I will find out from slc when the interest amount is added and pay this. From my calculations i estimate this to be 160/170 pounds.

From then on I will keep an eye on the interest rate and act accordingly, however I cant see it going up to 4% that it was at its peak [touch wood]

Does this seem like best idea?

Poolie

Interest will be added to your account once the repayments file is received from HMRC. You should be issued with a statement when this is completed. If you account if up to date till March 2010 on the repayment site then you won't get another statement till about around summer when the next return is received.

Interest rate is currently 1.5%, hopefully the government do not try and change the terms to make it just RPI which is what I they may have been planning for the current academic year since they announced the rate so late. If they do go for RPI only then the rate would be a lot higher.

atypical

Poolie wrote: »

Interest rate is currently 1.5%, hopefully the government do not try and change the terms to make it just RPI which is what I they may have been planning for the current academic year since they announced the rate so late. If they do go for RPI only then the rate would be a lot higher.

I don't think they want to bring up anything to do with university funding again!

If they get rid of the link to the base rate it will no longer class as a low-cost loan (or words to that effect) which currently gives the loans certain exemptions e.g. not on credit files.

Poolie

There never used to be a link to the base rate till the 2007/2008 regulations when it was introduced therefore the government can change the rules as it likes.

They wouldn't change the main principle on it being listed on credit file.