Student loans - higher rate taxpayer - to pay off or not?

lizbedford27

Martin,

Your student loans article does not consider those who are higher rate tax payers.

I am a higher rate tax payer, and I owe £4k. I think I'm going to pay it off - I have the cash, earning 6.2% in Icesave (my ISA is full). So, whilst the interest on the £4k loan would cost me £192 for the year, I can only earn £149 on the savings after the 40% tax.

I've been weighing up becoming debt-free (that would be £23k paid off in 4.5 yrs!), saving £43pa and having an extra £135pm (no loan payments) - versus 'losing' £4k of my savings and think I'm going to bite the bullet.

I just thought you might want to include the higher tax consideration in your student loans article.

Thanks for all your help to pay off the £23k!

Liz

darkly

I'm in the same (well similar) situation. I'm a higher rate tax payer and currently working abroad. The reason my situation differs is although I contacted the SLC regarding my move overseas they didn't do anything about it. This will be 2 years ago in October.

Given the worries I now have about having not paid for two years:

There are severe penalties if you don't tell the Student Loans Company, or chose not to repay by not providing them with information they request to be able to deduct repayments from your UK salary. These include tripling the normal rate of interest on your account, deducting repayments based on an income equal to twice the UK average earnings, and even demanding that you repay the total loan in one go…so beware!

I am seriously considering settling the debt of around £10K. I have my ISA maxed and plenty of overflow in an ICICI account so it will not effect my budget but I was planning on buying a car and getting a house when I return to the UK in a year or two.

What do you think??

sly_dog_jonah

lizbedford27 wrote: »

Martin,

Your student loans article does not consider those who are higher rate tax payers.

I am a higher rate tax payer, and I owe £4k. I think I'm going to pay it off - I have the cash, earning 6.2% in Icesave (my ISA is full). So, whilst the interest on the £4k loan would cost me £192 for the year, I can only earn £149 on the savings after the 40% tax.

Are you using your Full Mini Cash ISA allowance (£3k this tax year, £3.6k from next)? You earn interest tax-free on the cash inside these savings accounts, irrespective of income tax band.