Postgraduate loan or use savings?

Kicks4Free

[FONT=&quot]I am studying a one year masters course. I’m single and I have £60,000 which I was saving for a mortgage, until I decided to go back to University. I can now either use these savings to fund my masters course (tuition fees and living costs), or can get the new postgraduate loan to cover part of these costs.[/FONT]
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Under the new postgraduate loan scheme: I can borrow up to £10,000; the earliest I’ll have to start repaying the Postgraduate Loan is April 2019 (even though my course finishes this year), and I’ll only start repaying when my income is over £21,000 per year.
The interest rate on the loan is currently 4.6%. The rate is set by adding 3% to the Retail Price Index (RPI). The RPI is reviewed in September every year.


[FONT=&quot]I applied for the loan in September but I put a block on it as I wasn’t sure if I should use it. I’m not sure when I will be ready to apply for a mortgage. If I go on to do a Phd, I won’t be earning over £21,000, or eligible for a mortgage until at least 2020. My reasoning behind getting the loan (instead of using my savings) was that the interest on the loan would be less than the interest I would have to pay on my mortgage (if I used my £60,000 savings). If I don’t get the loan, I expect to spend at least £15,000 of my savings on this course.[/FONT]
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[FONT=&quot]Would you get the postgraduate loan, or part of the postgraduate loan, if you were in my shoes?[/FONT]
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[FONT=&quot]Thanks[/FONT]

ThePants999

I think that to answer this, you'll need to get out your crystal ball and predict your financial position when you come to actually want a mortgage. Consider these possibilities:

Scenario A: your masters launches you into a stellar career paying an enormous salary, so the bank will lend you a huge mortgage for the £500K house you want, as long as you have a 10% deposit, stamp duty, solicitors fees etc. Oh gosh darn it, spent the savings and only have £45K left. If only you'd taken the loan...

Scenario B: you have a modest salary and housing expectations to match, and the whole £60K to put to the deposit, fees etc. Oh gosh darn it, the bank are saying you don't pass affordability because of the loan repayments. If only you'd spent the savings...

;-)

Seriously, though, to my mind the key value the loan provides is flexibility. Assuming it doesn't have some hefty early repayment charge, you're only looking at £460 a year (minus whatever return you can earn on the £10K of savings you haven't spent) to maybe have an extra £10K deposit when you're looking for a mortgage - I think that may well be worth it. You can always repay it later if you realise that your monthly repayments are affecting your mortgage situation more than the lower deposit would be.

Herzlos

Bear in mind that you can pay off the loan from savings at any point, but you can't take out the loan later.

ViolaLass

I would get the loan in a heartbeat (if only I hadn't already done a Masters, dammit).

fitness_freak

loan or credit card

leestafford

I'd take the loan or at least a smaller amount to pay for the course.

amanita

Student loans are not a proper debt- you'd be insane not to take it up and throw away your savings instead. They are deliberately designed such that you only pay appropriate amounts towards your education with regard to your salary; the payable price of the course is designed to subsidise those who won't pay it off in full.

Basically, keep your savings, get all the student loan you can! At worst it's as though you have another layer of income tax for 20 years or so until it's written off.

robatwork

AS ML keeps pointing out, these loans are more of a contribution than a loan, to be repaid as a tax.

So take the loan all day.

There are situations where you would end up financially worse off, but who knows you may be in a nicer house but a bit worse off. The utility of that may well be worth paying some extra interest.