Student debt question

TheLondoner

Hi guys,

I've always been advised not to pay off more of my student debt than is automatically taken out of my salary. I was just wondering, now that the BoE has dropped interest rates to 0.25%, whether it would be better to just pay off my student loan rather than saving in crappy savings products?. at the moment the interest is 0.9%. I'm hoping that will drop from the end of August at least in line with BoE's interest rate.

On another note, look at this:

http://www.slc.co.uk/services/interest-rates.aspx

looks like people who took out loans in 2012 onwards are really being ripped off by the SLC/government. They're being charged interest rates up to 3.9%! That is more than some commercial loans these days! How has this been allowed to happen? It's outrageous what the government is doing to students.

Thanks for the help in advance!

Ed-1

TheLondoner wrote: »

Hi guys,

I've always been advised not to pay off more of my student debt than is automatically taken out of my salary. I was just wondering, now that the BoE has dropped interest rates to 0.25%, whether it would be better to just pay off my student loan rather than saving in crappy savings products?. at the moment the interest is 0.9%. I'm hoping that will drop from the end of August at least in line with BoE's interest rate.

On another note, look at this:

http://www.slc.co.uk/services/interest-rates.aspx

looks like people who took out loans in 2012 onwards are really being ripped off by the SLC/government. They're being charged interest rates up to 3.9%! That is more than some commercial loans these days! How has this been allowed to happen? It's outrageous what the government is doing to students.

Thanks for the help in advance!

For all but the highest earners the interest rate is irrelevant as student loans don't have to be repaid in full. For all borrowers the government will write off any unpaid student debt at

Age 65 for pre-2006 borrowers
After 25 years for post-2006 borrowers
After 30 years for post-2012 borrowers

So how is it a bad deal when only the wealthiest have to pay?

By the way interest on pre-2012 loans will be 1.25 percent from September.

Also post-2012 borrowers have a higher repayment threshold so many will pay less in total than those with lower interest and lower fees!

steampowered

As per the link you posted ... "Variable rate dependent upon income. RPI (0.9%) where income is £21,000 or less, rising on a sliding scale up to RPI+3% (3.9%) where income is £41,000 or more"

So it would only be worth paying off if:
- You are earning enough to both be getting charged the higher rate of interest and pay off the amount before it expires.
- You can't get at least 3.9% return elsewhere (which is easily achievable, especially with investments).
- You are unlikely to have any other need to be able to access funds in the future (for example a house deposit).

realaledrinker

Ed-1's comments hold good unless the govt move the repayment goalposts again, or indeed move the 'game' to another venue altogether.

The current model is unsustainable - most graduates will never repay in full. So follow recent form and guess what will happen - 10%, 11% ? reduce the £21K base? Extend the 30 year limit?

Superscrooge

TheLondoner wrote: »

Hi guys,

I've always been advised not to pay off more of my student debt than is automatically taken out of my salary.

That is still good advice. The way student debt repayments work, most students will not earn enough to pay off their full debt before it is wiped. So you could be throwing away thousands of pounds.

It's more sensible to save the money for a house deposit, or invest it.

Ed-1

realaledrinker wrote: »

Ed-1's comments hold good unless the govt move the repayment goalposts again, or indeed move the 'game' to another venue altogether.

The current model is unsustainable - most graduates will never repay in full. So follow recent form and guess what will happen - 10%, 11% ? reduce the £21K base? Extend the 30 year limit?

Just because most will not repay in full doesn't make it unsustainable. However if the reality of graduate earnings deviates substantially lower than the assumptions used in the model, they will become more costly for government. Personally I think the assumption of 4.4% annual graduate earnings growth is wildly optimistic and so the RAB charge will climb a bit over time which may as you say result in policy changes on the repayment terms. However it would take a lot of policy changes to result in the majority not having substantial write offs.

The treasury have set a target for the Department for Education to maintain a 28% RAB charge for student loans. It is currently forecast at 23% so there is room for manoeuvre.

Malthusian

TheLondoner wrote: »

looks like people who took out loans in 2012 onwards are really being ripped off by the SLC/government. They're being charged interest rates up to 3.9%! That is more than some commercial loans these days! How has this been allowed to happen?

What interest rate would you ask for in exchange for loaning money which I didn't have to pay back if I was unemployed or earning less than £21,000pa, and which you would have to completely write off, that is donate to me as a free gift, if I hadn't paid it back within 30 years?

If the answer is anything like 3.9%, can I borrow some money?

bigadaj

Malthusian wrote: »

What interest rate would you ask for in exchange for loaning money which I didn't have to pay back if I was unemployed or earning less than £21,000pa, and which you would have to completely write off, that is donate to me as a free gift, if I hadn't paid it back within 30 years?

If the answer is anything like 3.9%, can I borrow some money?

agree, but it's probably a worse case of Mis selling for many students than PPi was.

TheLondoner

Thanks for your reply guys! I will not pay it off early and will use the money to put towards a house deposit! @steampowered I'm intrigued. What kind of investments pay 3.9%. I'm looking into investing seeing as the interest rates are paltry at the moment and any advise would be greatly appreciated!

steampowered wrote: »

- You can't get at least 3.9% return elsewhere (which is easily achievable, especially with investments). .