Investing SAAS Loan into S&P 500

ZakkyBoy

Hello Everybody,

I'm currently a second year uni student graduating 2029 and just wanted to get some advice from other people.

I'm living at home and will be able to for the remainder of uni and only paying a small amount of dig money. I have a part time job that covers this just fine.

The Plan:

• I was planning on taking out a plan 4 SAAS loan of £8,400 and investing it into the S&P 500 VUAG Acc on Trading 212 through a Stocks and Shares ISA.
• The idea is to take out loans for the remainder of my uni each year and just invest it all into the S&P 500 as I don't need it at all.

Details on the SAAS loans:

• It's £8,400 for each uni year over 9 months, the first payment is a double payment of £1,680 then £840 for the remaining 8 months.
• The current interest rate is 4.1%
• It does not affect your credit score, although it does however affect when getting a mortgage as you have a smaller take home pay.

Loan Repayment Details:

• Payments only begin once you are over the current salary threshold of £33,795.
• You pay 9% on any money that you make over the threshold.
• You stop paying if your salary drops below the threshold.
• The SLC cancel any loan left plus interest 30 years after graduation.

Assumptions:

• I plan on holding for at least 10+ years.
• I'm assuming around 7% annual returns. (I don't have a whole lot of experience with trading so I'm not totally sure if this assumption is fair.)

I would love to hear peoples thoughts.

DRS1

"Neither a borrower nor a lender be".

EthicsGradient

It's a loan at the RPI rate, which isn't bad; if your salary stays low, you might not have to pay it all back (you don't say what you think your long term prospects are for paying it all back via the 9%).

However, it's still borrowing to invest, which is risky. Your current proposal is the S&P 500, which is both somewhat risky at the moment, at least according to many, because of the concentration of tech stocks, especially AI related, and also entirely affected by the pound dollar exchange rate.

If, and this is quite possible, the index drops, in sterling terms, by 40% after you've invested most of the money, are you going to feel OK about that impossible-to-get-out-of 9% repayment?

You say "I don't have a whole lot of experience with trading"; what is your reasoning for choosing just the S&P 500, and not, say, an all-world tracker (less exposed to the dollar and the S&P500) or something with a UK bias (even less exposed to those factors, though long term, UK investment hasn't done so well compared with the global market)?

LHW99

Are you sure on the repayment terms?

If you are 2nd year, you began the course in 2025, so will be on repayment plan 5?

If so, repayments begin at £28k - see section 5.4 at: https://www.gov.uk/government/publications/student-loans-a-guide-to-terms-and-conditions/student-loans-a-guide-to-terms-and-conditions-2025-to-2026

Also, section 5.8 suggests you will be being charged interest (at up to RPI) from the day in which you receive the first payment.

ZakkyBoy

https://forums.moneysavingexpert.com/discussion/comment/82138710#Comment_82138710

https://www.gov.uk/repaying-your-student-loan/which-repayment-plan-you-are-on

It's through SAAS so it's plan 4

and on SAAS's website it says

If you’re a Scottish student who started an undergraduate or postgraduate course anywhere in the UK on or after 1 September 1998, you’ll be on repayment Plan 4.

https://www.saas.gov.uk/full-time/undergraduates/repaying-the-student-loan

InvesterJones

It's risky, and the interest payment means you have less margin of error for things to break even (let alone beat inflation). If the US markets were to crash and take a decade to recover you'd potentially be in a tricky situation when your salary is above threshold. For that reason I think many platforms would want to check the source of your funds and it might fall foul of their T&Cs (I know T212 have a 'could you afford to lose your money?' type check for example).

ZakkyBoy

https://forums.moneysavingexpert.com/discussion/comment/82138689#Comment_82138689

I've done some reading of responses from elsewhere I've posted this and I've been getting a lot of people recommending VALL or VWRP instead of VUAG.

I believe I'm most likely going to invest into something like VALL instead to diversify as it seems like the safest option.

I do understand a it's a large risk but I do plan on leaving this alone for longer than 10 years, ideally it's for a property when I retire.

And regarding the 9% repayment, I understand that this will be a hindrance to my monthly cash flow, but I believe the compounding growth over time will make it worth it.

I really appreciate your comment!

dunstonh

If you ever needed an indicator that the S&P 500 is due for a major crash, this thread is it.

The current interest rate is 4.1%

So, not very attractive versus the long-term average return potential. All that risk for very little gain.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82138852#Comment_82138852

Interest payments and inflation compound too…

ZakkyBoy

https://forums.moneysavingexpert.com/discussion/comment/82139003#Comment_82139003

Yes, interest compounds, but my monthly payments would not change at all. The payments are not dependent on your debt balance; they're dependent on your salary. And if the balance isn't cleared within 30 years, it's written off regardless.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82139012#Comment_82139012

Are you aiming to be a low earner so that you can save on repayments?