Graduated and saved student loan - should I pay it back in full or invest?

ranran10ofthem

Hello dear friends!

I am graduating this year from Uni, and I managed to save the loan I took since the start. I had paid the tuition fee upfront, so only have a loan towards two years maintenance fees (approx. 12K)
Would you recommend to pay it back in full once I graduate? Or because this is a very steady loan with low interest rate it would be better to save it for something else, maybe invest? I've been raised not to keep any debts if I don't have to, but I saw in a few places that student loan shouldn't be treated as a normal debt.

Really don't know just seems like a big decisions to pay it all back, so want to know from your experience if there's a more clever way to proceed with this.

Many thanks!

BorisThomson

6.1% is not a low interest rate, that's what it will be from next month.

Do you expect to be earning over the threshold? If so I would treat it as a normal debt and pay it off. Think of the relief of not having to see the deduction on your pay slip every month!

enthusiasticsaver

Have you got a job yet and if so, on what salary? Student loan repayments depend on income. If you will be earning more than £21000 I think it is then it may be worth paying off if Boris is correct about interest rate. 6.1% would be a challenge and certainly not guaranteed if investing.

Shakin_Steve

BorisThomson wrote: »

6.1% is not a low interest rate, that's what it will be from next month.

Do you expect to be earning over the threshold? If so I would treat it as a normal debt and pay it off. Think of the relief of not having to see the deduction on your pay slip every month!

I don't think some of the older loans carry that sort of interest rate, only the ones starting this year?

Shakin_Steve

http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678642&_dad=portal&_schema=PORTAL

Mogley

If you are planning to buy a house as a first time buyer, 25% bonus for help to buy ISA or LISA beats 6.1%. The interest rates for your finance are for Plan 2 and can be found here http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678755&_dad=portal&_schema=PORTAL . Shakin Stevens link refers to plan 1.

Ed-1

Shakin_Steve wrote: »

I don't think some of the older loans carry that sort of interest rate, only the ones starting this year?

2012 was the year the system changed for new starters. The threshold for repayment was raised to £21,000 for new starters, as was the interest rate.

As OP has only just graduated, unless they've taken a very long course that started prior to 2012, they're on the post-2012 loans.

sheff6107

Number one priority after graduating would be to save for a house deposit in my book.

Every month you are paying out rent is money lost. You would just be swapping the loan for rent, which is an even worse deal.

Clive_Woody

Personally I would look to clear the student loan and start with a clean sheet.

As a young graduate my first priority would be buying my own place, so saving for deposit as well as setting aside an emergency fund would be my first targets.

Investing from a young age is great, but make sure you know what you are getting into and understand that your goals should be long term and investment can go down (a lot) in the short term and do come with risk. Have a read of some of the investment threads on here on the other board.

TBagpuss

I think you need to consider what you will be earning, and how soon you expect to be earning over the £21K threshold and having to start repaying, and also where / how you would invest it, and how risk averse you are.

Putting it into a LISA as Mogley suggests may be a good idea - you'd be racking up interest at 6.1% on the debt, which works out at about £730 in the first year - after three years the interest will be £3206, which wipes out the £3,000 you'd get as 25% bonus on your savings, so you'd have to take that into account .

Or if you were planning to invest the money elsewhere you would have to consider what sort of return you expect to get on the investment - it only makes sense if you expect to get back over 6.1% per year but you need to remember returns are not guaranteed, so you could end up with a lower return or even losing some of the capital - again, it depends a bit on where you were planning to invest, and how long for.

Because I hate being in debt, if it were me, I'd probably opt to pay it off, but to work out ho much I'd be paying back each month if I had not paid it off in full, and commit to putting at least that amount into savings / investment each month - possibly in a S&S ISA with a range of finds, so I could spread the risk.

or you could compromise and pay back (say) £6,000 and invest the other £6,000, so you hedge your bets.

Daveahare99

Yeah I would say direct the money towards a home deposit. If that's your goal. Or just do what I did with my loan change - go travelling : ).