Should I take full student loan and then invest?

Karlotti

Good evening!

i'm returning to university in September 2014, and would like some advice concerning investing my student loan.

I'm very lucky - I will be given a non-repayable bursary of £20,000, as well as a non-repayable maintenance grant of approx. £3,387. I'll be starting with a relatively healthy current account too. As I'm also applying for a tuition fee loan, I'll have plenty to live on.

I have also applied for a repayable student loan and have been told I will be paid £4,282. My question is - shall I take this student loan to invest it in my 1.55% ISA? (Not the best rate, but it suits my needs the best and am always looking for a better rate)

I'm not entirely sure of what the interest rate will be from September 2014 onwards - the MSE page says it will be 6.3%...

The GOV.UK website says it will be the current interest rate plus 3%...

And then the Student Loan Compant website is simply very confusing...

My conclusion is that I would be paying more than 6% interest on this student loan. As my ISA is only giving me 1.55% interest, there is no point taking the loan, is there?

Thanks for your advice.
Kind regards,
KT

RickyC_IFSWP

Karlotti wrote: »

Good evening!

i'm returning to university in September 2014, and would like some advice concerning investing my student loan.

I'm very lucky - I will be given a non-repayable bursary of £20,000, as well as a non-repayable maintenance grant of approx. £3,387. I'll be starting with a relatively healthy current account too. As I'm also applying for a tuition fee loan, I'll have plenty to live on.

I have also applied for a repayable student loan and have been told I will be paid £4,282. My question is - shall I take this student loan to invest it in my 1.55% ISA? (Not the best rate, but it suits my needs the best and am always looking for a better rate)

I'm not entirely sure of what the interest rate will be from September 2014 onwards - the MSE page says it will be 6.3%...

The GOV.UK website says it will be the current interest rate plus 3%...

And then the Student Loan Compant website is simply very confusing...

My conclusion is that I would be paying more than 6% interest on this student loan. As my ISA is only giving me 1.55% interest, there is no point taking the loan, is there?

Thanks for your advice.
Kind regards,
KT

If those figures are correct, then no it wouldn't be reasonable to take the loan just to make a loss.

But I guess the bursary and grants could be saved smartly for interest!

Eco_Miser

Karlotti wrote: »

My conclusion is that I would be paying more than 6% interest on this student loan. As my ISA is only giving me 1.55% interest, there is no point taking the loan, is there?

You've answered your own question there.

Masomnia

The only contrarian thing I think of is if you think you might want to buy a house in the near future, or something; maybe it'll be worth having the cash and using your savings as a deposit. After all you won't have to start paying it back till you're earning and a load of it may well get written off.

kteara

Masomnia wrote: »

The only contrarian thing I think of is if you think you might want to buy a house in the near future, or something; maybe it'll be worth having the cash and using your savings as a deposit. After all you won't have to start paying it back till you're earning and a load of it may well get written off.

What's the point if you have to pay back interest on the mortgage and interest on the student loan? That's getting bummed twice!

hornmeister

Lenders wont lend to you at an interest rate which is less they can get if investing it themselves. Otherwise what is the point of risking lending the money? With larger pots of money they are also able to obtain better rates that average joe.

To simplify, it's not wise to borrow money to invest, unless there is a substantial likelihood that the investment will outperform the loan rate.
Cash injection into a business for expansion for example.

Borrow as little as possible. If your bursary & grant are enough to live on, don't borrow anything. Being debt free gives you massive advantages in later life.

jabba42

Borrow as much as you can, spend like a drunk sailor in port. Get a degree then !!!!!! off to Australia where student loans cannot find you.

Lokolo

Karlotti wrote: »

I'm not entirely sure of what the interest rate will be from September 2014 onwards - the MSE page says it will be 6.3%...

The GOV.UK website says it will be the current interest rate plus 3%...

And then the Student Loan Compant website is simply very confusing...

Thanks for your advice.
Kind regards,
KT

It is RPI + 3% during study. After study it depends how much you earn.

While you’re studying Rate of inflation (Retail Price Index) plus 3%
£21,000 or less Rate of inflation
£21,000 to £41,000 Rate of inflation plus up to 3%
Over £41,000 Rate of inflation plus 3%

jimjames

Karlotti wrote: »

Good evening!

i'm returning to university in September 2014, and would like some advice concerning investing my student loan.

KT

You are not talking about investing, your posts refer to saving. Investing means stock market, putting money in shares or funds.

Investing may be an option if you think you can get a return greater than the interest rate, which could well be possible, but isn't guaranteed.

Porcupine

kteara wrote: »

What's the point if you have to pay back interest on the mortgage and interest on the student loan? That's getting bummed twice!

There's potentially motivation if it allows you to get a bigger mortgage than you might otherwise be able to (assuming the student loan isn't credit checked), or drop into a better LTV bracket.

For example, £100K house, deposit £5K, 95% 25 year mortgage at 4.0%, repayment £501 per month. Total cost £150,433 plus £5K deposit = £155,433

£100K house, deposit £5K+£10K student loan, 85% mortgage at 3.4%, repayment £421 per month plus loan repayment at 6%=£64pm, total repayment=£485. Total cost £126,296+£10K loan+£9329 loan interest+£5K deposit = £150,625

These rates are the current table-topping 'rates for comparison' (ie beyond fixed term deals) for these figures on Google Compare, needless to say take them with a pinch of salt.

As ever, you're taking a risk what will happen with rate movement. But you could, for example, grab a lower LTV deal and then decide to overpay the loan with the intention of clearing that debt ASAP. Or, if you don't earn much or RPI is weak, decide to leave the loan alone and focus on the mortgage. (There's all kinds of complicated secondary effects when your first deal expires and what LTV you might be at when remortgaging and its effect on your future rate, but that makes my head hurt)

Plenty of scope for advanced guesswork here... and a certain amount of playing with fire. One imperative though: if you're going to use this plan it does pay to get on with it. It doesn't work if you hang around too long before buying a house.

dale_cotterill

jimjames wrote: »

You are not talking about investing, your posts refer to saving. Investing means stock market, putting money in shares or funds.

Investing may be an option if you think you can get a return greater than the interest rate, which could well be possible, but isn't guaranteed.

This was a half decent option for people on repayment plan 1. (My interest rate is currently 1.5%)

Doesn't seem quite so realistic with the new system though.