Is it worth me repaying my student loan?

November_Rain

Hi,

To cut a long story short I attended university for just over one term last year but dropped out (I guess I'm not really academic).

I currently owe just over £1600 with an interest rate of 6.3%. As I am currently working part-time on just above minimum wage I am under no obligation to pay anything right now but I have an ISA, which is due to mature soon, with an interest rate of 3.3% and a current balance just below £15,000, plus around £2000 elsewhere, but I don't want to withdraw from that for now as I'll be losing interest.

With it being such a relatively small amount owed, I'm thinking of waiting until my ISA matures at the end of the month and then using it to clear the debt while saving the rest. Am I really better off doing this?

Simon11

Is your student loan really at a rate of 6.3%????

Florasaurus

Yep, I think student loans as of 2012/13 year have interest of Inflation(?) plus 3%... Which is crazy.

I would say yes, use the ISA to pay off the money. In fact, pay as much of it off as soon as possible. I like maths, lets do the maths

On your £1600, you're getting charged £100 interest a year

On your £15K, you're earning £495 interest a year

So overall, you'd be getting £395 a year



Now, if you paid that £1600 off,

On your balance of £13,400 you'd be earning £442 interest a year.


That's almost £50 difference, which might not sound like a lot, but over the years, that £50 is either going to earn you a lot of interest or it'll cost you a lot of interest.


If you were on the old style loans, I'd say no, the savings interest outweighs the debt interest but in this case, I would pay off as much as you can as soon as you can

angelsmomma

Arn't student loans written off after so many years if you are on a low wage?


http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes#18

amiehall

Are you planning on going back to uni at some point in the future? Obviously your current loan amount is definitely repayable and you would expect to repay this over your lifetime so it makes sense to pay it off and avoid the interest.

If you are planning on going back at some point and adding £££ to the balance, this might put the loan out of "repayable range" once the interest and rate of repayment is considered. So you might as well get this bit written off with the rest....

November_Rain

Simon11 wrote: »

Is your student loan really at a rate of 6.3%????

Yes, unfortunately it is.

Florasaurus wrote: »

Yep, I think student loans as of 2012/13 year have interest of Inflation(?) plus 3%... Which is crazy.

I would say yes, use the ISA to pay off the money. In fact, pay as much of it off as soon as possible. I like maths, lets do the maths

On your £1600, you're getting charged £100 interest a year

On your £15K, you're earning £495 interest a year

So overall, you'd be getting £395 a year



Now, if you paid that £1600 off,

On your balance of £13,400 you'd be earning £442 interest a year.


That's almost £50 difference, which might not sound like a lot, but over the years, that £50 is either going to earn you a lot of interest or it'll cost you a lot of interest.


If you were on the old style loans, I'd say no, the savings interest outweighs the debt interest but in this case, I would pay off as much as you can as soon as you can

Thank you for such a helpful answer.

angelsmomma wrote: »

Arn't student loans written off after so many years if you are on a low wage?

Yes, but I don't want to be mounting up shed loads of interest should I ever start earning over the cut-off point.

November_Rain

amiehall wrote: »

Are you planning on going back to uni at some point in the future? Obviously your current loan amount is definitely repayable and you would expect to repay this over your lifetime so it makes sense to pay it off and avoid the interest.

If you are planning on going back at some point and adding £££ to the balance, this might put the loan out of "repayable range" once the interest and rate of repayment is considered. So you might as well get this bit written off with the rest....

It's very unlikely I'll be going back to uni. I'm certainly not planning to.

I guess it's a no brainer really isn't it? I might as well pay off what I owe now so it's out of the way.

mucgoo

Florasaurus wrote: »

Yep, I think student loans as of 2012/13 year have interest of Inflation(?) plus 3%... Which is crazy.

It's RPI + 0-3% depending on your income on a sliding scale of £21k-42k I believe. november should be on RPI only interest. Check with student finance. At that RPI interest rate then keep it.

amiehall

Interest rate is automatically RPI +3 while you're studying and until the April after you graduate/leave. Then it enters repayment and the interest rate becomes variable.

Masomnia

I can't remember which month's RPI it is based on.

Last announcement was for September and that was 3.2%.

You won't get an interest rate that good this time round. Personally I'd pay it off.

Ed-1

Masomnia wrote: »

I can't remember which month's RPI it is based on.

Last announcement was for September and that was 3.2%.

You won't get an interest rate that good this time round. Personally I'd pay it off.

It's based on March RPI. This year March RPI was 3.3% so the interest rate while studying and until the April after finishing is 6.3% and then RPI only until April 2016 when it becomes variable RPI+0-3%. The interest rate changes in September each year based on the previous March RPI figure.