How to pay off student loan?

DavidN83

I graduated a year ago and have a bit of money saved up since I've been working full time since then; I think I am going to pay off my student loan in full now, in light of the fact that they are to double the interest rate on them soon.

Does anyone know how I go about paying the loan off in one go?

Also, does anyone think that paying it off would not be the right thing to do? When IR's were low on them, it was worthwhile keeping it, but now I don't think it is.

phlash

The interest rate on the student loan as of Sep will be 4.8%, but thats only until Sep 2008 and you can still beat that in a savings account.

My ISA pays 6.3% at the moment, I will therefore not pay off my student loan since my savings grow at a faster rate than the debt.

Whack £3000 in an ISA now, and £3600 in an ISA in April next year, then thats £6600 definately earning more interest than the loan. Anything else, make sure you beat the 4.8% rate. If you have a partner, whack the money into her allowances too.

Student debt is the cheapest debt you can find ever. At some point you will probably have a mortgage, at a much greater rate. Therefore if you have £10,000 of student loan and £90,000 of mortgage, it is better than £100,000 of mortgage. Plus the whole time that you would of had the student loan, you will have made money on it by beating its interest rate in a decent savings account.

Do not pay back early! Simple maths shows its better to keep it, also see other threads (there are loads of them stating the same thing).

phlash.

student_advisor

I echophlash completely.

The government is keen to take your money, don't be so keen to give it to them.

Keep your money and invest it. Pay it off as you earn only, and you might not have to pay it all back, thus making your education much better value!

DavidN83

Hmm...interesting points there.

Although a couple of things...

I could have sworn that I read (and this could be years ago), that the interest on a student loan compounds DAILY....what I'm trying to make sure is can I really earn more interest, after tax, than they will be adding onto it every year?

I still have my ISA allowance for this year (I took out an ISA right at the end of the last financial year), so I can put 3K in that. But what are the higest paying accounts to put the rest in?

CLAPTON

DavidN83 wrote: »

Hmm...interesting points there.

Although a couple of things...

I could have sworn that I read (and this could be years ago), that the interest on a student loan compounds DAILY....what I'm trying to make sure is can I really earn more interest, after tax, than they will be adding onto it every year?

I still have my ISA allowance for this year (I took out an ISA right at the end of the last financial year), so I can put 3K in that. But what are the higest paying accounts to put the rest in?

AERs and APRs take into account how the interest compounds ..the student loan will be 4.8% APR, if you get a savings account that pays more than that then you are making a profit.

phlash

NsandI ISA is currently 6.35%. Therefore you'd be making 1.55%. But, 4.8% is the highest level of RPI that there has been seen since the early 1990's, therefore you can bet your bottom dollar that by the time March 2008 comes around the RPI figure for then will be less than 4.8%. The figure from March RPI stat is the rate of interest that will be applied to the student loans for the following September for 12 months.

So, in short by next september the gap between the student loan rate of interest and your isa's rate of interest will have hopefully grown, meaning your making a bigger margin than 1.55%. As long as your margin is positive, you're ok, which you are!

Hope this helps.

DavidN83

Thanks for the help, much appreciated!