'Should you be allowed to repay students loans more quickly?' poll discussion

Mr._H_2

Iced_jem wrote: »

After finishing uni I used my life savings to pay off my student loan. When I tried to pay it back my uni finance advisors didn't know the process for paying off your loan and the SLC seemed surprised that I wanted to. I just wanted to pay it back before it started coming out of my pay cheque because I didn't want to still be paying for it in 10/20/30 years time when it seemed a age ago. I would encourage students to overpay or pay back their loans as quickly as possible to avoid it being a burden for what would seem like the rest of their lives!

If you have a current student loan (i.e. one where paying back starts at £15,000), please do not do this; it makes no sense unless you think savings interest rates will be lower than inflation forever.

Currently, I have about £16,000 student loan incurring 1.5% interest (this will increase significantly next year), and over £16,000 in cash earning about 4.3% before tax (spread across Lloyds Vantage and Santander current accounts), 3.4% after tax. Now, should I use my life savings earning 3.4% interest to pay off a loan that's incurring 1.5% interest? No, and neither should you.

Next year the situation will change and I'll be earning slightly less in interest on the savings as I pay in interest on the loan. But this is a highly unusual situation and over the long term, interest rates on savings will be higher than the loan interest rate.

Mrs_Arcanum

As someone with 2 children and a low income the changes have been a real concern. However if the fees are to be paid back in this way with no affect on credit scores it seems a lot fairer than the previous system, even if in the long run fees cost more. One thing I am somewhat confused over is the early repayment penalty & why early repayment would be a bad thing for those who can afford it? Surely there is only a marginal difference between early repayment and paying up front.

In all this it does seem somewhat ironic that many of those (on all sides of the house)making the decisions had the benefit of the old style student grants.

Mr._H_2

Mrs_Arcanum wrote: »

One thing I am somewhat confused over is the early repayment penalty & why early repayment would be a bad thing for those who can afford it?

It wouldn't be a bad thing for the individual who is overpaying. It would be a bad thing for the sustainability of the system as a whole and would require charging even more to those who are paying something but cannot afford to pay back early.