PLEASE READ BEFORE POSTING: Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.

Pay Student Loan or Save for Mortgage?

Hi.

I'm in a fortunate position where my grandmother has offered to pay off my student loan (+- £70k). She insists this is the best use of the money and is not keen on me investing it for a few years, then using more savings to pull together a bigger deposit for a house. I currently don't earn enough to get a mortgage on a house in the area I'd like to live in using £70k as a deposit. Should I just accept the money (she is very stubborn and is insisting its for the loan and nothing else) and pay off my loan, or am I better trying to convince her to let me save it for a future deposit. I'm not sure personally which is the better financial decision. I appreciate this is a nice problem to have, FYI! 
«1

Comments

  • steve866
    steve866 Posts: 542 Forumite
    Fourth Anniversary 500 Posts Name Dropper
    This probably depends on the interest rate on your loans, expected earnings and other factors. I would personally be lobbying to use it for house deposit without knowing more as it will be hard to get that deposit again!
  • Agree with Steve866. Perhaps your lovely grandmother worries about the debt which is understandable, but have you explained that you only pay it back when you earn over a certain amount? My daughter has about the same amount of debt and she's not paying that much per month. Try to explain that it's like a tax.

    Having said that, maybe she doesn't see house ownership as that important at a young age (which I also agree with) and she thinks you won't make much interest, or that you will fritter it away. Maybe she's so proud of you that she wants to pay for your education.

    Difficult one - could you come to a compromise? Put some away and show her that your earnings will cover the rest over time ? 


  • Do you earn enough to be paying the loan back? I paid mine off early, because it was costing me a significant amount each month (but I already owned a house and it was £10,000 left on the balance, rather than £70,000). If you are, and you are in an employment area which is relatively stable, then I would probably consider it. 
    Equally, I think it's better used towards a house deposit. 
    If it's pay off the loan or don't receive the money at all, then obviously I would accept her generous offer.
  • kingstreet
    kingstreet Posts: 39,213 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    What steampowered said. My 19 y/o at MMU is viewing this exactly the same way. 9% graduate tax on her excess earnings once she is working and earning above the threshold. I would expect the FOS to upload a complaint if a broker ever advised repaying a student loan ahead of other more important issues.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • Owleyes00
    Owleyes00 Posts: 244 Forumite
    100 Posts Second Anniversary Name Dropper
    Agree with pp, very little point in paying off your student loan early. A significant proportion of people will never have to pay it off in full and it is not debt in the same way as other loans are I.e. if you can’t afford to pay it back you don’t and the amount you pay back is proportionate to income.

    For context, I have two student loans. One on plan 1 (pre 2012) and one on plan 2 (post 2012) for a postgrad qualification. I owe about £35,000. I currently make just under £45,000 a year and repay £183/month on my student loan. If you were able to instead save that £183/month because you had paid off your student loan, you would save an extra £2,196/year. Not a bad amount of money but it would take you 31 years to save back the £70k you are being offered! I presume you would like to have bought a house by then?
  • fewcloudy
    fewcloudy Posts: 617 Forumite
    Part of the Furniture 500 Posts Photogenic Name Dropper
    BD1871 said:
    Hi.

    I'm in a fortunate position where my grandmother has offered to pay off my student loan (+- £70k). She insists this is the best use of the money and is not keen on me investing it for a few years, then using more savings to pull together a bigger deposit for a house. I currently don't earn enough to get a mortgage on a house in the area I'd like to live in using £70k as a deposit. Should I just accept the money (she is very stubborn and is insisting its for the loan and nothing else) and pay off my loan, or am I better trying to convince her to let me save it for a future deposit. I'm not sure personally which is the better financial decision. I appreciate this is a nice problem to have, FYI! 

    @BD1871

    As others have said, do NOT use it to pay off the student loan.
    Almost any other financial product will make more sense, esp a house deposit. That will (potentially) reduce the amount you need to borrow, saving a lot of money in interest over the years.
    All other types of debt too should be dealt with before even thinking of paying a penny more than you HAVE to odd your student loan. Then pensions and God knows what else...

    Grandmother is likely of a generation where she is focused on the word LOAN. i.e a debt. Understandably wants to help you get rid of that burden.
    Whereas we know it's a loan sure, but like no other. More like a tax for the vast majority of students and ex-students who have one.
    Feb 2008, 20year lifetime tracker with "Sproggit and Sylvester"... 0.14% + base for 2 years, then 0.99% + base for life of mortgage...base was 5.5% in 2008...but not for long. Credit to my mortgage broker
  • Thanks everyone. I will work on trying to get her to see the light...!
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350K Banking & Borrowing
  • 252.7K Reduce Debt & Boost Income
  • 453.1K Spending & Discounts
  • 243K Work, Benefits & Business
  • 619.9K Mortgages, Homes & Bills
  • 176.5K Life & Family
  • 256K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.