Still a student-should I pay loan back now?

saver1986

Hi all,

I'm still a student, and in my first year I got a student loan which was nice at the time, but now into my third year, this loan has started gaining some interest on it.

I'm lucky enough to be in the position to pay it pack through part time work (this website etc!), but should I pay it straight off to the student loan company (SAAS) or should I put the money aside and put it into a high interest account and let it capatalise on high saving interest and low borrowing interest?

[Deleted User]

It depends on what interest rate you are being charged on loan and how much you can get on your savings.

The interest on the loan will rack up over time and by the time you have earned enough to pay the whole lot off you will have a much larger amount to find.

Having said that - I am not up to date on how student loans work - I am assuming they are just a straightforward loan but you don't pay it back until you graduate and are in work?

If there are no penalties or restrictions on paying it off early then it would be better to pay off what you can, when you can.

ohmsoft

I think with a sudent loan (although may be wrong) the maths will allow a net return if you invested the amount wisely - the interest charged as I understand is just above inflation.

Not sure if the amounts involved but maybe an ISA - at least by doing this you wont have to result to another, perhaps more expensive, loan in the future if circumstances change.

Vickicb

I am paying my student loan back at £150 per month - and as I am moving house soon and will have some equity left over (we're downsizing a bit) I mentioned to my Financial Adviser that I might pay it off (about £4K left). He said definately NOT to do that, he said that it is the cheapest borrowing I'd ever have and I'm bound to want to do stuff to the new house that will need money, If I use the money I'll have to pay off the Student loan I'll probably just put house stuff on Credit cards and therefore be worse off in interest terms.

I know that is a different situation to yours but the fact that it's the cheapest borrowing you can get still applies. When you graduate you might want to buy a house, put down a rental deposit on a flat, buy a car, or whatever, so I would say you're better off putting the spare money you earn into a savings account for now. You won't have to pay back the student loan until you're earning (and then it's only 9% of your income over £12K), but you might be glad of a lump sum in the bank in a year or so.

[Deleted User]

Vickicb wrote:

I am paying my student loan back at £150 per month - and as I am moving house soon and will have some equity left over (we're downsizing a bit) I mentioned to my Financial Adviser that I might pay it off (about £4K left). He said definately NOT to do that, he said that it is the cheapest borrowing I'd ever have and I'm bound to want to do stuff to the new house that will need money, If I use the money I'll have to pay off the Student loan I'll probably just put house stuff on Credit cards and therefore be worse off in interest terms.

If you did choose to pay off your student loan and use credit cards to fund any spending on your new house, there are still plenty of 0% cards about. Unless you are paying no interest at all on your student loan this might be worth considering?

Mikeyorks

Paying off your Student Loan early .. is generally not the wise thing to do.

Fairly definitive explanation on this very site :-

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1157645184,28030,