Repay my Student Loan or save in cash ISA?

blondiex

I'm a 24 yo uni graduate working 2 minimum wage jobs (my annual income is around £10,000). I have no overdraft or credit card debt and low monthly outgoings, BUT I owe £6,173 student loan money that I haven't repaid and am not currently earning anywhere near the repayment threshold (15,795).

I have £19,500 in a cash ISA at 2.75% and hopefully by April I'll be able to add the full cash ISA allowance (£5,760) right away (I've saved £4,000 so far) and along with the £500-odd interest my ISA will be sitting at £25,500+ if all goes to plan.

At over £25,500 my cash ISA could, from April 2013-April 2014 gain about £800 interest.

BUT if I kept the £5,760 and saved for another month or 2 I could pay my entire student loan off in one lump sum, leaving me completely debt-free and saving the 1.5% interest (around £93) that's added each year.

By keeping the 6,173 in a cash ISA I would make £170-£190 on it depending on the ISA interest rate.

I'm naturally a saver and ideally would love no debts, but I am trying to be realistic in the current economic climate! In my opinion, holding onto a loan that has no inflation and only 1.5% interest would be the sensible option, however my mum seems to think I should be repaying it for my credit score. I do have a credit card that I pay off in full by direct debit monthly (I only use it for my £20 phone bill or occasionally online purchases). Am i missing anything here at all?

Sorry for this being so long, I appreciate all and any advice or opinions!!

ajdj

Student loans don't show on your credit file, so whilst you can earn more interest in a savings product than the 1.5% student loan interest it would make sense to keep saving.

If it was me I would pay an amount equal to the interest to the student loans company every year (~£93) and keep saving with a view to clearing the balance in full when I entered a job with a salary equivalent to the payment threshold (£15,795).

Then when you get that job you have the satisfaction of no debt, a very good level of savings and the full benefit of the salary increase.

blondiex

Thanks, I didn't know that student loans don't show on your credit file but that makes my decision even easier
I can keep on using it to bump up my ISA interest and set up a payment to cover the 1.5% interest.

I'm hoping my graduate job income (if I ever get one!) will be high enough to be able to put down a deposit for a mortgage in a couple of years while house prices are low, and am thinking the £6,000 would be better off as a student loan than an extra £6,000 of a mortgage loan at much higher interest rates + inflation! So for now keeping it seems to have the most advantageous outcome!

pqrdef

If I was offered a loan on those terms I'd grab it. Is there any way you can borrow more?

innovate

You can have a free peek at your credit files at https://www.noddle.co.uk/.

Worth setting up a separate email for subscribing there because they will send you all sorts of bumph to entice to you to pay for one or other of their services. Resist, there's nowt anyone needs that you have to pay for at noddle. But their free service is good.

blondiex

pqrdef wrote: »

If I was offered a loan on those terms I'd grab it. Is there any way you can borrow more?

Unfortunately not! It was available to undergraduate students a few years ago and I was just lucky to be there at the right time

blondiex

@innovate - thanks I'll have a look at that now always a bit wary of just what you sign up to with these sites!

ViolaLass

Why pay the interest off early when you don't have to? It's only going to go up by around £100 a year.

blondiex

ViolaLass wrote: »

Why pay the interest off early when you don't have to? It's only going to go up by around £100 a year.

Yeah I suppose if the student loan doesn't show on my credit file then there's little point in paying off the interest early apart from keeping the total down. It's under £1.50 extra in interest so maybe I should find some more profitable way to invest that £100.. every little helps and all that..!

kidmugsy

Just keep an eye on the interest rate on the loan. But as long as it's less than you make on your ISA, keep saving there. Anyway, someday a politician desperate for votes may offer to wipe out that debt.

Masomnia

I'm a similar age and in a similar situation.

They aren't getting a penny out of me more than I legally have to give them