Repaying student loan as a postgrad?

SkintStudent_4

I’ve just graduated :beer: after a 4 year course where I received the minimum amount of student loan each year. I also had to pay the full fee amount for the first three years but received the final year free.

I’m continuing as a student by going on to do a PhD. I understand that my undergrad student loan will continue to increase with interest while I’m studying for my PhD. I’ve been awarded a nice grant for my postgrad studies and, after budgeting think I’ll have some money left-over.

Is it best to put this into my mini ISA or use it to voluntarily pay off some of my student loan?

jr666

I suppose the golden rule of debt management is to pay off all debts where you pay interest before you start to put money aside. The money you make on an ISA will be lost in loan interst repayments so i suggest paying off the loan. Up to you though

Eliza252

interest on student loan is so low - that you might make profit by putting it in a high interest savings account - do some math with the interest rates! You can always stick it in an ISA and then take it out when the interest on the student loan increases to the point where it is no longer profitable

trace-j

If you've got the spare cash, put some in the bank. Repaying the student loan is like taking 3 steps forward and 2 steps back, in one year I've only repaid £1000 off £10,000. On my graduate bank loan I've paid £2500 and will have the entire amount repaid in 2 years. At the rate SCC take repayments on PAYE this debt will be with me for another 10years. The student loan debt is something all students have to live with now- it's almost an accepted debt now.

Of course paying off debt should be at the top of the list, but since you are continuing with your studies you can do without this liability/distraction. It isn't like a regular loan where you have to make monthly repayments. The money falls off the wage slip like an extra tax.

You never know what might happen during next year, it's good to have something to fall back on instead of a credit card.

Good Luck with your PhD

zar

In my opinion its almost certainly better not to pay any of your student loan off early for the following reasons:

(i) Your circumstances might be such that you don't end up paying off all your student loan, for example if you were a stay-at-home mum or dad for a few years, had an accident and were unable to work, or went into a low-paying sector such as charity or academia - you don't pay off anything if you are earning less than 15000 (this should rise each year I hope!) and anything left when you get to 65 is cancelled so it won't be a burden when you are retired.

(ii) The interest rate from 1st September 2005 will be 3.2% - the rate is "inflation" which in this case means the retail price index (RPI) (rather than the new CPI which is lower, funnily enough!) and is set yearly, changing in Sept each year. As long as you check each year that your savings get more interest than this after tax then you are making that extra money.

You have 3 options - your ISA, a high-interest account (useful at the moment as you shouldn't have to pay any tax but not so good once you start paying tax) and the third that might be worth considering is national savings inflation-linked savings certificates. Since these pay RPI +0.95% (3 year fix) and RPI +1.00% (5-year fix) tax-free, if you put money into these rather than giving it to the SLC you can forget all about it as you won't be losing any money.

http://www.nsandi.com/products/ilsc/overview.jsp

(iii) Keeping at least some money accessible is a really good idea. I'm in a similar situation as you, and my bursary meant that my husband and I could buy a car staight out rather than getting a loan - and that definitely makes more sense than paying off some student loan and getting a commercial one! You may want a car or a house deposit or to go travelling or anything and need to get at the money which you won't be able to do if you give it to the SLC. Bear in mind that most funding is for 3 years but almost everyone takes longer than that to finish their thesis so you might need some savings to tide you over at the end!

Depending on your own preferences (and assuing you are paid quarterly) I would start off by putting some money in a high-interest instant access account now and see how much you have left in December to see how you budgeting's going. Move the money into your ISA before the 5th April so you don't lose this year's allowance. If you have a lot extra that you don't mind locking away then consider getting a 3 or 5 year index-linked certificate as well.

Good luck with the PhD I hope you enjoy it :j

p.s. Another issue that I've been wondering about is voluntary national insurance contributions/pension - I haven't figured out the best plan of action for me yet but you might want to consider putting some of the spare cash to these uses?

Gem_

It is also not economical to pay it off early if you are not paying tax bacause the loan payments through PAYE (ie a normal paycheck) go thorough PRE tax. This means that some of the money that goes off your loan, 22% of that payment if you are a normal rate tax payer, would have gone to the government in Income Tax anyway. So to an extent you are paying them off with their own money.

Generally an savings account is a much better bet. Dont forget that as a grant paid student you are not paying tax (presuming you dont have another source of income?)
If you are not a income tax payer then there is no tax on your savings. You may be able to find a higher rate than the ISA ones in a regular savings account such as INGdirect.

This is what I have done anyway

Good Luck

Gem