Should I pay back my student loan?

wallofbeans

I've just had my deferment letter from the student loans company. I'm eligible to defer again as I'm freelance and my income is under the limit, but I could pay it off in full if I wanted... The question is - should I?

There are three loans taken out between 94-96, which now totals around 6k and I think has an interest rate of 3.6% (according to the last statement I can find from 2013).

Any advice?

TartanSaver

Find out what the interest rate ACTUALLY is. If the interest rate is higher than any other debts you hold (such as a mortgage) and higher than you can earn by saving the money in high interest accounts (after any tax) then you should pay it off. If it is lower than any of the other interest rates, you should defer and focus on paying off any more expensive debts, or on saving with it.

Eg: If you have a mortgage (or car loan or whatever) at 4.5%, that £6k will be costing you £270 a year. The student loan, at 3.6%, will cost £216.

Similarly, if you can earn more than 3.6% in interest (you can manage 4% after tax on £4500 very easily by using TSB classic plus and nationwide flexdirect) then you should use those options first.

wallofbeans

TartanSaver wrote: »

Find out what the interest rate ACTUALLY is.

If you can earn more than 3.6% in interest (you can manage 4% after tax on £4500 very easily by using TSB classic plus and nationwide flexdirect) then you should use those options first.

The rate seems to have gone up and down over the years, it's been higher than 3.6% some years and a lot lower others. It started out A LOT lower. The most recent statement I have is from 09/2013 and has the 3.6% but I'm not liking that it seems to change...

I've already got a Santander 123 account working for me and have been tempted by the TSB/Nationwide options but the amounts you can get the 5% on is so small it's frustrating.. Nationwide is especially hard work as I'd have to keep £1000 coming into it every month.. Might go for the TSB though as that rate isn't just for 12 months and I'd only need to bounce around £500 a month... I couldn't find any mention of what the interest on money above the 2k is though..?

Thanks for the advice. Really helpful!

TartanSaver

wallofbeans wrote: »

I couldn't find any mention of what the interest on money above the 2k is though..?

It's 0%. You get 5% on the first £2000, nothing on any extra. If you contact the student loans company, they should be able to tell you the current rate, which will probably be based on the Retail Price Index figures from a particular month, so it will change annually.

I bounce money round Nationwide, TSB and others every month to meet paying in requirements. Takes me 15 minutes to do all my acconts, it's really not hard. If you really can't be bothered though, might be better paying your loan off!

Poolie

Current interest rate for pre-1998 loans is 2.5% till August 2015.

wallofbeans

Poolie wrote: »

Current interest rate for pre-1998 loans is 2.5% till August 2015.

Thanks. That's not bad. So I shouldn't pay it off now. But have another look at it in August? I was thinking it might be a good idea to pay some of it off but maybe not yet. I'm going to open a 2k TSB account for sure.

I've already paid off all credit cards and don't have any other loans or a mortgage (yet anyway) so this is the only thing hanging around...