My sister's £20,000 student loan debt

FeelGood_2

Hi guys,

After getting my debts in order with help from this site, I want to help my sister get on top of her £20,000 student debt. Fortunately I started university the year before grants were abolished and actually got paid £800 a term.

The debt is sitting there not being paid off accruing £60 a month in interest at 3.5%. Her boyfriend has inherited £40,000 and is perfectly happy to pay her debt as they plan to spend the rest of their life together which I see no reason to believe they won't. She is also receiving £6,000 from a maturing savings plan from my parents in April. Apart from that she won't be receiving any income in the next year as she is going away the whole of next year to do courses in permaculture and sustainable living - this may have been useful during her student years! Not that she was careless getting into debt, five years with fess and foreign stints takes it's toll. Her boyfriend's cash will pay for them next year and is also set aside to purchase land for a school they want to set up together. He is a teacher in Native American ways of living and she has just left her job in TV to go off and live her dream with him, they are both very driven and ethically conscious people.

So the question is whether to pay the lump sum into the debt or try to make some investments that will pay the interest and eat into the total debt. I have suggested mutual funds for the compound interest but this is only something I have read about so don't really know the ins and outs. Considering they are away next year and would only want to invest in ethical investments is there any suggestions that anyone can make?

Happy Christmas one and all.
Liam.

roswell

If this is a student loan there is no need to repay it till she has full time employment above a set level

si1503

The loan rises at the rate of inflation, a lot less than the returns you could get from that money if saved, or better yet, invested. So with that in mind the smartest thing to do is pay off the loan as slow as possible.

CLAPTON

the current rate of 'interest ' is 2.4% (previous year sept 2005 to aug 2006 it was 3.6%)

so in financial terms as long as they can earn more than 2.4% after tax it makes sense to save the money. with saving accounts paying around 5% gross , i.e. 4% net of standard tax a straight forward saving a/c would probably be OK.

unless they understand stocks and shares or similar investment and are comfortable with the risks then they are best avoided.

seraphina

I would pay off my student loan only as a last resort for the reasons outlined above by other posters - it's a "cheap" debt. I pay it back at the rate it's taken out of my salary - my spare cash is better in a savings accout or paying back other debts.

One other point - although you say her boyfriend is happy to pay off her debt I would strongly avoid against that. You never know what will happen, and unless they have some of the legal security gained by marriage, I would never let a significant other pay off any of my debts.