Student Loans

clart79

In an earlier email Martin suggested that it is best to pay off your loan debt before saving except for student loan debt. This is because the level of interest on student loans is low and set to inflation so its more economical to save that money. However, recently the interest rates on student loans has risen from 2.4% to 4.8%. Is it still economical to not pay it off? Also 4.8 % seems a lot highr than inflation???

Thanks

CLAPTON

Student loans are linked to the inflation rate for March each year.

Currently it is possible to get about 6% on an ISA which gives a small profit compared to 4.8%.

Obviously if you have higher rate debts, then pay them off first, if you expect to need to borrow soon then save rather than pay of student debt, if you think RPI will drop by next March then again you may wish to retain the student debt.

displaced1980

What if you're debt free (other than student loans), in the top tax band and you've used your ISA allowance for the year?

Any extra money would have to go into a taxable savings account, which is surely unlikely to achieve more than the Student Loans Co interest rate after tax?

In these circumstances, wouldn't it be better to use the extra cash to pay off the student loans?