should i get a student finance maintenance loan even though i don’t need it

sophia1803

i’m due to start uni this september 2020
i was very fortunately offered a £10,000 bursary for each of my years of study (totalling at £30,000 across the 3 years). So i initially decided i would use this for my living costs so i’ve only applied for the tuition fee loan not the maintenance loan. However i wondered whether it’d be wise to now also apply for the maintenance loan also, due to my household income it’s estimated i’ll be entitled to the highest maintenance loan of approximately £9,000. Although i do not need the extra loan i thought it may be wise since it’s unlikely i’ll pay most of it back so could put it in a savings account and use it for future as i believe student loans are the most affordable loans? Would this be a wise financial decision? I’m so undecided as i don’t want to get myself into unnecessary debt but it may be worthwhile if i don’t end up paying it all back. any information and advice will be greatly appreciated, thanks

Shakin_Steve

The savings account idea is not really practical. Student loan interest is currently around 6% and you'd be lucky to get 2% on savings, even tying your money up for 5 years. As you say, there's a good chance you wouldn't have to pay all of it back but, in your position, I'd rather owe ~£30K after 3 years than ~£60K.

Shakin_Steve

Of course, you don't have to take the full £9K, so I guess it's up to you to decide whether you'd like a £3K fallback fund for year 1 and take future years as they come.

ARH_2

Gut feel: Grab it and invest it, which will offset a big chunk of the interest. When you come to buy your first home , you'd be grateful for it. 

Being a bit more measured, we really need to know more about your future income (e.g. degree course, career plans) in order do some calculations and get a view of how much of the debt gets written off in the two different options. 

If you're likely to be a big earner you probably should minimise the expensive borrowing, whereas if your degree won't likely lead to big earnings, you should be grabbing the debt which ultimately gets written off. 

sophia1803

thank you both for your advice, there is obviously an element of risk involved. I've tried to use loan repayment calculators to work out how much I'd end up paying back but they didn't really make much sense to me. the average salary for my course is around 27,000 after 6 months of graduating and 35,500 after 3 years of graduating. so I would likely start to pay it back as soon as I get employed. still not sure if it's worth it or not

Jami74

I would say (unless you are a mature student and unlikely to come close to paying it back) don't take more than you need. If there is any chance that you might pay off your student loan in your working life then paying back £30k will mean many more years of not having that extra deductions from your wages. I think you'd have to be quite financially savvy and work it hard to make it worth while.

HampshireH

On those salaries you will end up paying it back.

I had a 9k student loan (initially - with interest it obviously went up)
I've paid it all off and for the majority of the time my salary was between 18k and 35k as my career progressed. Rising a bit more in the last 3 years of repayments.

I also had to clear the balance to get a mortgage as I was in the last year (13 years after I got it) of repayments so paying by DD at the SLC recommendations so not to overpay.

Obviously if you need it thats what its therefore.  But dont just get it on the assumption you wont pay it back.

ARH_2

HampshireH said:

On those salaries you will end up paying it back.
I had a 9k student loan (initially - with interest it obviously went up)....(13 years after I got it)....

It sounds as if you had a Plan 1 student loan, which is a very different beast to the Plan 2 loan the OP will get. It's unclear to me in your post whether by 'it' you mean the tuition-only loan or with the extra maintenance loan the OP has the option of. Congrats on paying it off. I'm looking forward to not losing that chunk of my payslip to my plan 1 loan in a few years time!

@ the OP now:
On these salaries if you take just the 9,250 x 3 tuition fee loan you'll almost certainly pay it back. If you take a further £30,000 you'll almost certainly not pay it all back, but you'll make some contribution to the £30,000. 

The question is whether that contribution that you end up making is more or less than £30,000. To answer that question mathematically you'd have to make assumptions about what you'd earn in each of the 30 years after graduation. Having had a quick go, starting with what you provided [see note], it's really touch and go, but very sensitive to how you think you salary might progress, say, 10 years after graduation. If you think you might take time out or working part time at some stage (e.g. starting a family) that would tip it towards getting the extra loan.

As you say there's risk either way, and to me there's no clearly better choice. I'd argue that taking the extra loan is actually the less risky course of action. If you earn less, you have that bit extra - the lower earnings are partly offset by a student loan write off. If you earn more, you have to pay more student loan back, but you can afford it, because you earn more. 

Note: based on assuming your salary continues rising at that same rate for four more years to 52,500 and then plateaus, except you get an RPI salary increase in every year. 

Niv

Why are some suggesting the bursary will be paid back? Bursaries are like grants, they do not get paid back. 

Niv

Take a look at this thread (about the power of compounding) - hopefully that will help you in your decision.
https://forums.moneysavingexpert.com/discussion/6154125/what-would-you-do-as-21-year-old-investor/p1 
 

ARH_2

Niv said:

Why are some suggesting the bursary will be paid back? Bursaries are like grants, they do not get paid back. 

True - the extra borrowing the OP has the option on is £9,000 x 3 years = £27,000, rather than £30,000 that I'd stated. thanks for this. 

This thread really boils down to a point Martin mades publically and often: Is a plan 2 loan really a loan? Answer: It depends, and is far too complicated.