Should I pay off my student loan?

Caderman86

My son has just graduated and we are debating whether we should help him pay off his student loan or use the money to help him put down a deposit on a flat. He is from the first year of graduates that paid the £9k fees and has a debt of circa £45k.
Rather annoyingly the moneysavingexpert expert section on this topic doesn't yet cover the most recent graduates - come on Martin , please update your section.
In the absence of MSE advice can some else help?

agrinnall

Did you check the 2012+ Starters Loans tab? While you're right that it should be updated now those people are graduating and will start to be eligible to repay the loans, I doubt if the update will add a great deal to what's already there.

I would have though that in almost all circumstances it would be better to use the money for a deposit on a property rather than to repay a loan that has favourable terms.

bsms1147

It depends, his loaned amount is accumulating interest at a rate of 5.5% APR at the moment.

If he is likely to be in the majority who never pay the loan off, then it does not matter how fast the debt is building up. It could have a rate of 1,000,000% APR and the amount paid back by the time it is written off would be the same. Pay the loan at the specified rate via his salary. Use your saved money for the deposit instead.

If you think he is likely to be one of the graduates who, based on their career earnings, is likely to pay it back, then the loan is growing faster than the money would make if it were saved instead, so in a purely financial manner, it makes more sense to pay the loan off. The waters get a bit more muddied when those savings can be used instead for a house deposit, as the available capital would potentially allow for a) the purchase in the first place, or b) better interest rates on the mortgage.

wileycat

The 5.5% would definitely tempt me to pay it back, but only again if you were likely to pay it off in the lifetime.
Mine is on 1.5% so I'm using money to overpay the mortgage currently at 2.5% instead!