Student Loan Profit Making

danlofty

In September 2013 I will become a student and I am lucky enough to have my parents paying my tuition fees, and therefore assumed I would not need my student loan. However after doing a bit of research it seemed I could make a profit on my student loan by placing it in a high interest savings account or ISA, with interest on the loan at 1.5%. But is this still possible with the increased interest on student loans to 3% above inflation? As then the interest on the loan would surely be above that of the savings account, making no profit?

Herbalus

Bingo.

Yes, you will be charged inflation of 2.7% + 3% for your student loan, so even if you had it in the top paying instant savings account (currently 1.75%), you would be losing 3.95% each year.

BUT student loan does not equal tuition fees. A tuition fee loan is paid direct to your university, so if you are paying these yourself then you can't take the tuition fee loan and stick it in the bank.

Student loans are for living, so you might want these to live on.

The_Jakal

I cannot believe that you are allowing your parents to pay for your tuition fees upfront.

As Martin and many other student finance commentators state, this is not the best plan of action.

Your parents would have been better to put that money into a savings account for yourself to use once you graduate!!

By paying early you are pretty much gambling that you will get a well paid job when you finish uni and that your parents wealth will continue.

Imagine you struggled to find a job for a year and then both of your parents lost their jobs (I know it's unlikely and don't know your situation). You would definitely regret paying that £27,000 upfront and not saving it!!

Unless they have a LOT of money, then it's ok.

Florasaurus

You will need your student loan. The student loan company pay you your loan and they pay your fees - it's kept completely separate.

So for example, I get £1600 every term. NONE of that goes to my uni for tuition fees. SLC pay my fees direct to the university so I never see any of that money. So you'll get the £1600 or whatever and that is what you have to live on: Rent, bills, food, transport etc for 3 months - that amount wouldn't change if you were being lent the money for fees.

If you're looking for ways to make money, the very first thing I did when I got my student bank account was to take out a full overdraft (I got £1500 at 0%) and stuck it into an ISA. Provided you don't actually need to use your overdraft, which you shouldn't, over a 3 year course you'll earn just under £100 if you have it in a decent ISA.

Hope this helps, if you have any more questions about student loans then pm me, I'll be happy to help

brendon

Realistically, it may be worthwhile taking the tuition loan and taking £27,000 from your parents if they are happy to give it to you. Although it will not 'make a profit' in savings terms, it does make up a decent deposit for a small flat and you will not be able to get £27,000 worth of credit at better rates (after uni is generally the credit-intensive part of many people's lives).

sharp910sh

The interest on the new student loans is RPI plus 3%. So currently 6.6%. that is crazy high. Higher than a mortgage. I would not take out a student loan if you can afford not to take it.

setmefree2

danlofty wrote: »

In September 2013 I will become a student and I am lucky enough to have my parents paying my tuition fees, and therefore assumed I would not need my student loan. However after doing a bit of research it seemed I could make a profit on my student loan by placing it in a high interest savings account or ISA, with interest on the loan at 1.5%. But is this still possible with the increased interest on student loans to 3% above inflation? As then the interest on the loan would surely be above that of the savings account, making no profit?

As other posters have said you can't profit on your student loan by placing it in a high interest account.

As to whether your parents should pay your tuition fees up front:-

A few questions -
1) Will your parents be paying all your living expenses too?
2) Do you intend to have kids? Become a housewife/house husband?
3) Do you intend to travel? Join a band? Take up acting?
4) Do you intend to work hard, earn lots of money & get very rich?

The_Jakal

Although many people are correct, you could technically make a profit after you graduate on your student loan (depending on how much you earn).

browser

I believe that another consideration is what you will actually pay back. If you take into account that the debt is wiped after 30 years and many (perhaps even most) students will not pay the whole loan off before the 30 year, the 'effective' interest may be lower.

While it may be difficult to turn a guaranteed profit I certainly wouldn't make the statement that you should avoid this loan.

Mummy_Moo

Take out a student loan for the tuition fees and ask your parents to hold onto the money they were going to use. Then use it as a deposit for your first house when you finish uni. Or, better yet, your parents could use it as a deposit on a house now, let you live in it, and make a bit of money renting the other rooms to other students.