Should I pay off my Student Loan?

FatVonD

I think you should keep the student loan and have a mortgage that's £8,000 less. If your circumstances change and your income drops I believe you wouldn't have to make payments to your student loan (I'm sure someone will correct me if that's wrong) unlike your mortgage so makes sense to get your mortgage lower in case that ever happens.

sofarbehind

I have been thinking about this too but decided to grow my deposit instead. That's much more of a priority as I'm getting on and it's been such a struggle to save so much. As a compromise I have promised myself that'll I'll overpay it by £50/month after I've bought a house. I pay £170/month so it will be wonderful when it's paid off.

Jon_B_2

immoral_angeluk wrote: »

I think people underestimate the psychological benefits sometimes and only see the 'black and white' side of things. Owing nothing is a huge weight off your shoulders and the relief of that does wonders for you mentally and physically.

You have to do what will make you feel the best. Yes ok interest is higher on this that and the other but when you're talking a minimal difference in the long run, go with what makes you happy.

I understand your point re: a debt off your mind. But honestly I would urge people not to get hung up on student debt. One way or another it will be paid off, if not by the state, then eventually through wage deductions.

Inflation is at ridiculously low levels and as student debt interest is tagged to inflation there is absolutely minimal net benefit to paying off the student loan.

Someone else made a very good point about the fact if you lose your job or take a drop in pay, your payments go down accordingly. If it drops below 21k/year (new scheme) or 15k/year (old scheme) you pay none at all!

redux

sofarbehind wrote: »

I have been thinking about this too but decided to grow my deposit instead. That's much more of a priority as I'm getting on and it's been such a struggle to save so much. As a compromise I have promised myself that'll I'll overpay it by £50/month after I've bought a house. I pay £170/month so it will be wonderful when it's paid off.

If the mortgage interest rate is higher than the student loan, it would be better to overpay that instead.

Better still would be to put it in a savings account that pays higher than the mortgage rate, which is possible at the moment.

Don't make debt into a feeling of guilt, but treat it as a useful tool as long as it's under control.

matttye

immoral_angeluk wrote: »

There are some people who don't consider student loans as debt, some who do. There are some people who don't consider mortgages as debt, some who do. It all depends on the OPs perspective. With the reduction in the student loan repayments it's possible that the OP could save the money spent on clearing the loan after a while to make up for it anyway.

Only the OP knows their full circumstances and how it would affect them financially. My point is mainly about how sometimes the psychological effect can be equally worth any possibly financial gain from doing something differently.

Life is too short to concern yourself with ifs and buts unless you absolutely have to.

Whilst the OP might be able to re-save the deposit faster without student loan debt, if the OP had a higher mortgage deposit (by not paying off the student loan debt), they would have less debt at a higher rate and thus pay less in interest on the mortgage.

Not paying off the student loan debt will result in the OP being debt and mortgage free more quickly than if they did pay it off.

Miss_FinancialHappiness

Thank you for all your comments. You have all made really good points. I agree that a student loan is not a traditional debt and it would be better to focus on getting on the housing ladder, however sometimes the way in which you psychologically view something can overpower common sense , i.e. mortgage rates exceed student loan rates.
I think the key thing for me is changing my perception of what a student loan represents as it was not debt incurred for the sake of debt but to better myself, so I guess viewing it as an investment in myself for which I need to repay (change in wording - I know) will make it easier to not automatically class it as traditional debt.

Serendipitious

A friend has just finished paying her student loan and is thrilled to bits.

The presence of the student loan didn't stop her getting her first mortgage on her first house, nor did it affect the increased borrowing as she moved up the housing ladder onto her second (much bigger) house. Naturally her income has increased during her 9 years of home ownership, and so, correspondingly, have the student loan payments, until it was finally paid at the beginning of the year.

The extra cash that has become available now means she can overpay on the current mortgage, so it's all worked out very well.

Good luck with whatever you decide.

sofarbehind

redux wrote: »

If the mortgage interest rate is higher than the student loan, it would be better to overpay that instead.

Better still would be to put it in a savings account that pays higher than the mortgage rate, which is possible at the moment.

Don't make debt into a feeling of guilt, but treat it as a useful tool as long as it's under control.

That's an excellent point, thanks. I have the old style loans and the interest rate is currently 3.3%. I will be more rational and compare this to my mortgage rate when I eventually have one. If I can save my way to a higher LTV it might be lower but perhaps that doesn't matter as it can be deferred if my income drops and mortgage payments can't!


Great thread, really helpful.

Jon_B_2

I reckon my student loan will be paid off in about 10 years time when I will be about 37. So I have decided instead of welcoming the extra income. I will immediately put those monthly payments into a pension pot before tax.

Good idea?

Fluffi

My advice would be to use your 8k for a larger deposit that will reduce your LTV and therefore probably increase the number of mortgages you can chose from and reduce your interest rate, thereby saving you thousands in the long run.

Also a student loan is very different to other debt in that if you end up unemployed / earning less money then you don't have to pay it back and eventually it gets written off ... that won't happen with your mortgage! Student loan is the "nicest" and most flexible type of debt to have - work on servicing your mortgage (or potential mortgage first).