Student Loan Payback

binary0110

davidmoore83 wrote:

add on top of this that i will want a mortgage a car and i maybe looking at having a family (who knows) surely i would be better trying to rid the student loan debt now!?

No-one ever wants a mortgage but as you've highlighted, it's often a necessity when you want to buy a house! Given that the student loan interest rate is currently below the BoE base rate (and will continue to be next year, unless the BoE drastically cut rates, which I doubt they will) then the logical thing to do would be to put any money you would have used to pay back your loan into a high interest rate savings account or ISA and pay back the student loan as slowly as possible. You've just said that you'll probably end up with a mortgage in a few years time so why pay off a loan which accrues interest more slowly than a savings account when you'll have to start paying off a loan with a much higher interest rate in a few years time?

The money which you save now (instead of using it to pay off the low interest rate student loan) will serve as a useful deposit for any house/car purchase which you make in the future and in practical terms will effectively mean that you utilising part of your student loan to buy a house rather than having to use another loan (i.e. mortgage) which is pegged at a much higher interest rate.

Edit: I just thought I'd add that as soon as you take out a mortgage (or any other loan) then the only logical thing to do is to pay off the remainder of your student loan as slowly as possible since the student loan will almost certainly have the lowest rate of interest (unless you get a very good mortgage deal!)

HGLTsuperstar

Not true, not only are payments not backdated, they have a tendency to "be misplaced" then neither SLc or HMC&E want to accept responsiblity

jamesebaker

Do not pay the student loan off upfront. The best thing to do, which is what I have done with my student loan, is make minimum repayments only. The interest rate from 1st September 2004 to 31st August 2005 was 2.6% and from the 1st September 2005 it will be 3.2% which is still below the rate of inflation. So, in real terms, the size of your debt is reducing even without making payments.

It is better to invest extra capital you have into ISA's, high interest accounts and index trackers if you're willing to expose yourself to risk. If you choose the latter, ensure you're willing to keep the money in the tracker for a minimum of 5 years.

eenu

jamesebaker wrote:

So, in real terms, the size of your debt is reducing even without making payments.

cant see that being correct....how can a increase in interest rate mean my debt is going down!? Sorry i am tired maybe i am missing the point

binary0110

davidmoore83 wrote:

cant see that being correct....how can a increase in interest rate mean my debt is going down!? Sorry i am tired maybe i am missing the point

He means with respect to inflation. This would certainly have been the case during this academic year (2004/2005) when the interest rate was only 2.6%. I believe the SLC try to fix the interest rate for each year at the average rate of inflation (measured by the RPI) in the last year.

surfcat

It's measured by the value of the RPI in March. Thus because this March had quite high inflation, next years value is high (3.2%)