Investing postgraduate loan

alexperry95

Hi,

Just wondering if I could get some insight to if this seems like a financially sound idea.

I am coming to the end of my masters course, and have not taken out the available £10,000 postgraduate loan to do so. It has recently occurred to me that because of it being a "good" loan to take out compared to a mortgage ect. it might be worth me making the most of the money available, and taking the full £10,000 to invest in a lifetime ISA over the next few years to take advantage of the 25% state bonus.

If anyone has any advice on this thought process/anything else I should consider it would be much appreciated!

Arleen

You do realize that you have to pay interest on that loan, right?

alexperry95

Yes.. Hence the reason I didn't originally take it out. But if I am earning enough to pay back more than the interest, and the 25% state bonus from the lifetime ISA is larger than the cost then it is worth it no?

[Deleted User]

That post-graduate loan *is* cheap at 4.6% and it gets paid back like your undergraduate student loan.

Put it in a lifetime ISA and you'll get a £2500 bonus. BUT - you won't be able to add it all at once, it'll take you 3 years. So you'll need some other savings vehicle. You'll obviously get interest in these accounts, but I doubt 4.6%.

I'm sure you can do the maths - but I don't think it's worth it as there are too many loopholes. The longer you don't use the money to buy a house, the longer you are paying loan interest. If you want a house over £450k you'll take a penalty and loose all your bonus + more. If you want a house with a partner who's not a first time buyer - you loose your bonus.

alexperry95

Thanks for the detailed response!

I understand the issue with not being able to add it all at once, I had considered putting the money into my funding circle account, which normally returns around 7% albeit with some risk. But even considerably less than this 7% would leave me roughly breaking even on the interest front before investing it.

The loophole issue is something to consider I must admit, but I think the chances of a first house purchase being over £450k are extremely low.. Buying a house with a partner who is not a first time buyer also seems somewhat unlikely.

Is there not also the consideration that I will hopefully pay off my postgraduate loan reasonably quickly, and probably buy a house within a fairly short time-frame? Or does this just mean that it isn't worth bothering with the loan, as I should be able to pay a reasonable amount into a lifetime ISA as it is?

[Deleted User]

Remember - you can't pay off the loan with the lifetime ISA money or you'll have a penalty. So, it'll come down to income.

What if it takes you 6 years to settle down and buy a place? It's not just about money, but about when its right for you.

It's not a bad idea, but it's got a lot of variables to it.

Lets optimistically say you earn £30k after graduation. You'll be paying that loan back at about £540 a year. So.. 20 years to pay it off that way (roughly). Even at £40k a year it's about £1140 of payments.

So, this loan might take you 10 to 20 years to pay back in total. Which sounds like a pain in the !!!! for £2500 that you may not even get.

(I say all this, but I used a £3000 in student loans to pay for a 5 week holiday.. so, don't read too much into my advice)

Shakin_Steve

ringo_24601 wrote: »

Remember - you can't pay off the loan with the lifetime ISA money or you'll have a penalty. So, it'll come down to income.

What if it takes you 6 years to settle down and buy a place? It's not just about money, but about when its right for you.

It's not a bad idea, but it's got a lot of variables to it.

Lets optimistically say you earn £30k after graduation. You'll be paying that loan back at about £540 a year. So.. 20 years to pay it off that way (roughly). Even at £40k a year it's about £1140 of payments.

So, this loan might take you 10 to 20 years to pay back in total. Which sounds like a pain in the !!!! for £2500 that you may not even get.

(I say all this, but I used a £3000 in student loans to pay for a 5 week holiday.. so, don't read too much into my advice)

That's a very prudent way to use a student loan, most use it for beer :T