Student Loan Repayment + Grandparent's wills

Dragonista

My maternal grandparents have set aside £25k in their will with the condition that it is used to pay off my student loan, any surplus to use as I want. They're are 92 and (nearly) 87. They're in pretty good health so one or other may last another ten years or more. But my loan repayment has got me thinking.

Would I end up better off by over-paying my loan now? So that when they pass I can use the money to work better for me. I already save 23% of my gross salary, have no other debts and can afford to pay one and a half or double my loan repayment each month.

Or should I speak to my grandparents about the exact terms of their will with the view of asking them to change it?

Or am I over thinking things? Should I leave it as it is?

Thanks. Any thought welcome.

(ETA, apologies for my grammatical error in the title)

brendon

Well, it's really up to your grandparents. Have you spoken to them about this? By the sounds of it, they want the money to have a purpose. If they're hard to convince, then "I can use the money to work better for me" probably won't be enough -- they may want to have some kind of objective goal for the money, hence why it's to pay off your student loan. Maybe you want to buy a house in the future?

Also, it will not be worth overpaying, since you can earn more interest saving (I assume, what loan?). So you could save up £25,000 from now, use the £25,000 they give you to pay off your loan, and you will be no worse off (actually, you'd be better off).

Dragonista

Thanks Brendon, they specifically said they want me to be debt free

BristolBob

Dragonista wrote: »

Or should I speak to my grandparents about the exact terms of their will with the view of asking them to change it?

Or am I over thinking things? Should I leave it as it is?

I don't think you should raise it with them. They are giving you a generous bequest. Be happy that you will be debt fee (whether it is financially efficient or not).

redpete

I don't understand why you would need to get them to alter the terms of the will.

There is nothing in the terms that prevent you paying off the loan early - I can't imagine they would disapprove of you doing so. It would just mean that the surlus for you to 'use as you want' will be more than it would be otherwise. You would end up with all your loan paid off whether you pay some of it early or wait until the inheritance arrives.

The only issue would be if you decided to leave the loan outstanding and paying off the minimum amount after you've received the inheritance. This might make financial sense if the interest you can earn on savings is more than the loan costs you. In any case I would respect your grandparents' wishes and make sure any outstanding loan is paid off when you get the inheritance.

I see three options:

1 - Start overpaying now (worth it if you can't earn more on savings than the loan is costing) and pay of any balance with the inheritance.

2. Continue paying the minimum and pay the balance when you get the inheritance.

3. Pay minimum now and continue paying the minimum once you receive the inheritance (as I mentioned above - I would respect their wishes and not do this).

The choice between 1 and 2 is entirely up to you and both comply with their wishes.

alexjonsson

Not to mention that you may not actually get the 25k. Who knows how much their estate will be worth in another ten years or more.

Personally I'd be paying more off the loan now if I could. Even though it's not financially efficient as you could put money into a higher rate savings account, I'd be happier getting rid of my debt.

But that's just me and I'm not very good at saving. If I wasn't paying off the loan with the extra money, I'd be spending it not saving! That's not to say wasting, just not saving...

Dragonista

Thanks very much for this. Obviously, I am extremely humbled that my grandparent's feel this is what they want to do with their money. I appreciate that I am lucky that I'll be debt free.

Dragonista

The highest savings rate I can find where I live (outside of the UK) is 0.3% (no, you didn't read that wrong) whereas my loan is 1.5%. Sending money back to the UK is expensive considering the small sums I'm talking. I'm just confused to be honest.