HELP?! Should I repay early?

jamesgreggcatton

I'm really confused about trying to work out what is best for my finances, and what to do about re-paying to student finance.

I am an undergraduate and expect to graduate in June this year. Therefore, I think that my student loan repayments should start come April 2015?

I have an income contingent style loan, Plan 1.

Am I right in thinking that interest is applied to the loan once a year, every year until it is paid back, at 1.5%?

For example, have I worked this out correctly? My tuition fees for my first year (2010/2011) were £2630. After four years, come April 2015 when I am due to pay it back, I'll have to pay back ~£2791.39?

My main question is - I have some money saved away in ISAs. Am I better off, considering I don't expect to have a mortgage or any other loans for the next few years, to leave that money in an ISA that earns over 1.5% interest every year? Or should I use it to pay off a chunk of my student loan straight away?

I'm really confused and can't seem to work out what is best in my head!

Lokolo

If you can get a rate better than 1.5% then you are better putting it there.

Say you have £100.

- £100 + 2% ISA
End of Year you will have £100 + £2

If you instead put £100 into student loan
- Reduced capital by £100, reduced interest by £1.5

With the former, you now have £102. You then have 50p profit.

jamesgreggcatton

Wow - its so simple when you look at it that way. Why I couldn't have seen it like that in the first place, I'll never know.

Thanks for the help

Southend1

You may be better off keeping your savings towards a deposit on a home. Comparing the interest rates is technically correct in that it tells you where to make the most efficient use of your money right now but don't forget to think about other factors. It's sometimes worth sacrificing a little now by paying a "premium for liquidity" because you think you may need that liquidity in due course.

alexanderalexander

Southend1 wrote: »

You may be better off keeping your savings towards a deposit on a home. Comparing the interest rates is technically correct in that it tells you where to make the most efficient use of your money right now but don't forget to think about other factors. It's sometimes worth sacrificing a little now by paying a "premium for liquidity" because you think you may need that liquidity in due course.

I completely agree. When you have a loan on as generous terms as a student loan, you should think very hard about it before over-paying as you're never going to get anyone lending you money on such generous terms again.