Student loan paid off

boiledcabbage

Well not quite but as good as. After following advice here to build savings up, I now have 13k saved with 13k debt from the student loan so I'm finally all square. Rest assured its all nicely tucked away in ISAs and the like, and I won't be paying it off properly just yet :money:

So here it is. I'm 26 and have had to move back home to get the ol' bank balance in order. Now, is it smart to stay at home longer to build savings up (i.e. make some headway on a deposit for a house) or move out and start living properly. The only thing stopping me is my miserable pay - around 1000/month before tax. It's not the pay that's bad as such, but I only work 3 out of every 4 weeks-ish. So subtracting tax, London rent, bills plus all the other living costs wont leave much..

I know everyone's different and you have to do what's right for you etc.. but I just wondered what other people have done (or would do) in my position. I've had a few weeks to think and cant decide one way or the other.. perhaps it's flip a coin time

Broke_Student

You have 13k of student loans, but that does not mean you need to have 13k stashed away somewhere earning interest to benefit from its 0% rate. The point is not to overpay it and let it come off your wages when you are earning over 15k. Use the 13k if/when you need to!

If I was in your position, I would live cheap at home for a while until you have a substantial amount saved up. Use this time to research the property market and decide what you want to do. Once your income rises significantly, move out and look into getting a mortgage on a small flat (possibly rent a room out for income?). Use your savings and your 13k to as a nice deposit.

janey_uk

I agree with the last post. Someone may correct me, but student loan interest is so low, you would probably be better off investing the money. For example, if you get a mortgage in a few years time, the money is better spent as a deposit or on paying the mortgage off quicker as the interest on that is higher.

Bamber19

janey_uk wrote: »

I agree with the last post. Someone may correct me, but student loan interest is so low, you would probably be better off investing the money. For example, if you get a mortgage in a few years time, the money is better spent as a deposit or on paying the mortgage off quicker as the interest on that is higher.

That's what i was told, i've not sat and worked it out but at first glance looking at the letter that came in from the SLC showing the monthly charges i'll be tempted to pay it off as soon as possible as i'm sure it's costing me more than i am earning on that money.

CLAPTON

currently the SLC is charging 2.6% which mean if you can earn more than that after tax you gain a little by not repaying so an ISA paying more than 2.6% or an 'ordinary' a/c paying more than 3.33%.

Glasgow_Paul

CLAPTON you have quoted the rate incorrectly. Student Loan interest is currentl 2.4% and is due to rise due to the inflation figures released this morning. The actual interest rate figure for 2007-2008 will not be know till later on but I am PREDICTING 4.8% for the coming year

boiledcabbage

I agree with you there GP, they seem to go by March's RPI every year when they readjust it in September.

March RPIs = Student Loan annual interest

2004: 2.6
2005: 3.2
2006: 2.4
2007: 4.8

All of which means, from September onwards the 13k I've saved to offset the 13k debt will barely be accruing any extra interest. I'm currently earning 4.64% interest on the savings after tax (after the likely rise in May, this will rise to around 4.8 I'm guessing). Of course, it's still be worth keeping the savings rather than paying off the loan because it's good capital. And there's always the chance in Sept 2008 the rates may drop back down to low 3's.

Personally I feel 4.8 compound interest on a student loan is ridiculous and they should be going by CPI but then there's probably others who'd disagree.

Glasgow_Paul

The rate does not actually change till the September and is fixed for the year from September till August. Your best option might be to call and find out what the actual value of your loan is at the moment so you know how much harder you are going to have to save to pay it off

boiledcabbage

Yes I give 'em a call every month to keep a record. I could wait until the yearly statement comes through the door but I like to keep on top of things. Graduates have actually had it very good over the last 12 months paying 2.4 when the RPI has been steadily rising. For example it's been over 3.0 since last June and 4.4 since December.

I'm actually in a very good position with no real debts plus savings. It's the current students I feel for, who may not have been as savvy with savings as I have. Not blowing my own trumpet or anything, just explaining that I kind of started this as a victory thread rather than a crying-into-my-loan type thread

Tirian

I likewise have saved up as the equivalent to my loans in savings, and it's also sitting in an ISA (although at 5%). Plus another 2k from my 0% M&S card

My advice - definitely stay at home for a while. I've lived in London on 1k / month for a while and it's not fun at all. In fact it's very bloody difficult. If you move out, not only will it be harder to save, but you'll have to live somewhere pretty grotty just to make ends meet, unless you have some very good friends who'll give you cheap rent.

Heck, I take home £300 or so more than that and I cycle in and out of work pretty much every day (Stratford to Tott. Ct Rd!) to keep transport costs low, and it's still a squeeze!

If student loan interest does go up to 4.8 then I may well just pay it off at that stage. Depressing though it would be to see the savings go, I don't like the idea of my money pedalling hard to go nowhere. Depends what the base rate is by then, I suppose!

[Deleted User]

It is at 4.8% at this very minute, thus at the moment for some people if this is your highest debt and its more then you can save at ie pretty much every savings accounts thats not tax free. Then yes you should pay it off.

But and only but... If your not getting a mortgage any time

Given you cant get one in london it might be best if you get one up north and rent it out to offset. Do you have any relatives in affordable areas?