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

enthusiasticsaver

6.1% is misleading. That is the rate that post 2012 students earning more than £41k will pay. RPI + 3%. Graduates earning less than £41k do not pay 6.1%

darkidoe

sheff6107 wrote: »

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.

I would do a bit more reading and thinking before calling 'paying rent as money lost'. For one, the liberty of not being a mortgage slave to the banks/financial institutions for 20-30 years is a huge psychological relief, imo.

Some good articles to get you started:
Rent v. Owning Your Home, opportunity cost and running some numbers
Renting is Throwing Money Away... Right?

@OP
I would say check out your interest rates on your loan and compare it to interest rates you can get from saving/current accounts before deciding. There is no rush indeed if the interest rate on the loan is low.

CouponClipper

I'd save it for a house deposit for rainy day money.

I graduated two years ago so am on the 2012 system and quite frankly the talk on interest rates, while relevant, is not the scare story it's made out to be.

Don't worry about the 6.1%. That interest rate can go down as well as up so this year IF you're earning £41k+ you'll pay that. But if you're just earning over £21k it'll be around 3/3.5% same price as an average loan with a good credit history.

Honestly I wouldn't invest if you're looking to buy in 3-5 years. If it's looking like 10-15 then maybe but make sure you have an emergency fund to back you up as well.

Only you know your circumstances though such as wage oppotunities and where you're currently living.

zippygeorgeandben

Hmph - Home ownership isn't the be all and end all. It might appear to be in Britain and there is certainly a measure of snobbery of some people looking down their noses at renters.
Personally, I'd pay it off. I'm absolutely fed up off seeing £200plus coming out my account every month. it's like a never ending payment. If you can pay it off, you'd then get more in your net salary and can start to budget like a good savvy financial person you (and your parents) are.

dawyldthing

But at the same time it's a nice sum to have. Only you know what you will be earning - if it's over by a few grand it still will only be a percentage of your wage. That £12k could be put to something you need - now or in the future. Yes it's gaining interest but I'll put it in my circumstances - I graduated 7 years ago nearly. For me you have to earn £17k a year - I don't earn that much so every year they tell me it's gone up, I just think 'thats nice' as it's not being paid off.

I certainly wouldn't waste it on a new car or something but if you're thinking of buying a house or something in the future put it towards that as it will save you more in interest doing it this way than paying the student loan back that may well never get paid back

badmemory

Will the money you have saved actually pay off your loan. Doesn't interest start going on from the date the first loan money was given to you. Or is that other student loans not yours. Is the interest you earned more or less than that due?

dawyldthing

It doesn't matter if the interest is 40% a year, unless you're earning probably £50k a year you won't even pay off the amount borrowed, never mind the interest

Car1980

darkidoe wrote: »

I would do a bit more reading and thinking before calling 'paying rent as money lost'. For one, the liberty of not being a mortgage slave to the banks/financial institutions for 20-30 years is a huge psychological relief, imo.

Some good articles to get you started:
Rent v. Owning Your Home, opportunity cost and running some numbers
Renting is Throwing Money Away... Right?

@OP
I would say check out your interest rates on your loan and compare it to interest rates you can get from saving/current accounts before deciding. There is no rush indeed if the interest rate on the loan is low.

I'm between owning houses and am paying rent every month. It's money down the drain - end of.

TrustyOven

Car1980 wrote: »

I'm between owning houses and am paying rent every month. It's money down the drain - end of.

Yeah! Down the drain!!!

I mean, it's not like you get something in exchange of the rent money.... like a roof over your head and the flexibility to be able to terminate your contract and move to a different town/city/part of the country if you found a more interesting or better paid job.

Yeah... money down the drain.

I wonder if darkidoe's point was what I've noticed as well - there's a tendency in the UK for people to fixate on just houses. As if that was the only thing people know about in terms of money. One of my parent's friends told me last year to get a house (I'm saving up for a deposit atm) because it was "the best investment ever", and I wondered if people only say that because they are clueless about other forms of investment. You hear it from some people "dont buy risky stocks, buy a house... safe as bricks!". Maybe it's a lack of financial education?

So taking the quoted comment above, "end of" implies that same one-way thinking that's probably best not to ascribe to. Renting when you could have a house and are in an industry where you don't anticipate having to move, might be less sensible than buying, but it isn't wasted money. Otherwise you will say "damn... i just bought some foooood in order to survive, but it was wasted money".

ranran10ofthem

Shakin_Steve wrote: »

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

The interest rate if (RPI) +3%, which comes to be about 4.6%