To pay off or not to pay off- thats the question!

poochel

Hoping for some advice from all you good people...

I graduated this summer with the usual student loans, overdraft, credit card debts etc. Have managed to more or less clear my overdraft and credit card by working like a dog all summer.

My parents have just dropped the bombshell that they have, in fact, been saving and are able to pay off my student loans for me. (Didn't want me to know before now so that I wouldn't laze my way through uni and expect someone else to pick up the tab- as if!)

Now this is incredibly generous as 4 x full student loan= £lots. The question is:

Do I pay off the loan in full, leaving me with no debt at all? Or do I use the money, put it in high interest savings etc and pay off my loan in the usual way through my earnings?

I'm not really sure what's the best way, on the one hand I could completely clear my debts and then start with a clean slate, on the other, I could use the cash to earn some decent interest/start off a pension etc (which may be the best course of action, especially considering the scary pension headlines going around at the moment.)

Also, is there a limit on the amount of money my parents can give me? I read somewhere about 'gifts' and how they are only tax free up to a certain amount. But would the taxman necessarily have to know about it?

Many thanks!

zcaprd7

Several such topics on this board - try a forum search.

General consensus is to keep the student loans as long as possible...

elisebutt65

But how ethical is it to use the moey your folks have saved, to get interest on. They saved up in good faith so that you could be debt free at the end of your studies and you, yourself have paid off your other debts.

Logically, the thing to do is invest it, but emotionally, I would thank them profusely and use it as they wish.
;D

zcaprd7

OK - say thanks - but you are better off not clearing them.

Let them keep the cash in their savings account and if they insist, pay you what the student loans company charge you in interest (with them keeping the difference) - that's fair - and if anything happens like you lose your job they can either pay them off (or more likely) you can defer the loan and have the money to see you through...

Robert_Sterling_3

The student loan is about the best loan you will ever get.
You can invest it at a higher rate than you are charged for borrowing it.
If you have the will power to not spend it you profit from retaining it.

johnllew

My parents have just dropped the bombshell that they have, in fact, been saving and are able to pay off my student loans for me.

I'm doing something similar for my chidren. I will pay for their university costs but will encourage them to take out student loans. At the end of their courses, they should have loans matched by savings (plus interest) which will be theirs with which to do whatever they want. I will then advise them to keep the loans as a cheap source of finance for perhaps a house deposit or car.

It makes good financial sense to keep the loans; your parents will probably appreciate this and will be happy for you to use the money they saved for you as you see fit (wisely of course).

poochel

Thanks for the advice. I think I'll sit down with my parents and gently explain that I'm better off by investing the money. I think they'll be happy with it because they know i'm sensible about money and can be trusted not to blow it all on fast cars and holidays!

Thanks