Stoozing with Student Loan Repayments

speedstar0610

Hear me out...

I currently pay my student loan back at ~£300/month. As we know, this is duplicitously calculated on pre-tax income, but deducted after tax. So, if I were to cancel PAYE repayments to SLC, I would have the full £300 in my bank account at the end of the month. Lucky me!

Now SLC are a finnicky bunch and won't take kindly to me stopping payments all together. So, being an honest fellow, I can setup a direct debit to pay them a fair £1 a month, leaving me with £299 in cold hard cash.
Cold hard cash I can then wrap up in a lovely, lucrative and tax free wrapper such as an S&S ISA.

At the end of the tax year, my employer does the dirty and grasses me up (or I grass myself up in my tax return)... Turns out I owe £3588 to the SLC, and they want their money NOW!

Hands-up. You got me. Let me dig in to my savings to square things up.

That £3588 has grown at a lovely 8% to £3747, leaving me a toastie £159 come April.

Am I missing something or is stoozing with SLC repayments a sensible approach so long as you are disciplined? So long as my rate of return in the ISA is greater than the interest paid on the loan (Plan 1, lucky me!) then I am quids in?

speedstar0610

speedstar0610 said:

So long as my rate of return in the ISA is greater than the interest paid on the loan (Plan 1, lucky me!) then I am quids in?

Plan 1 interest is currently 4.3%

speedstar0610

This does all assume that SLC let me opt out of PAYE repayments.
My balance is reasonably low (couple of years left) so there is potentially an argument to be made there

Mark_d

It's risky to behave dishonestly just to make £159.

silvercar

You or your employer can't just decide to stop slc repayment deductions. The rules are clear:

https://www.gov.uk/hmrc-internal-manuals/collection-of-student-loans-manual/cslm17015

So your plan fails at the first hurdle.

Once you get to a point where you are likely to have repaid it all within 23 months, you can request the SLC to stop deductions and set up a direct debit instead. Even then you can't set the direct debit at £1, it needs to be of an amount that will repay the loan within the time period they have estimated.

silvercar

You've also got to be confident that the interest you will make on what would have been loan repayments will be greater than the interest charged on the loan. Allowing for the fact that if you have too much interest you will face tax on it as the personal savings interest allowance is only £1000. Even if you are below that amount, the interest you are generating on these payments eats into your allowance.