Student Loan Grief

delmontebanana · 11 May 2006 at 3:57PM

I've been reading this forum with interest and I'm really impressed with the compassion and support for one another. Well done

I have a problem too (which seems to pale in comparison to a lot of other people on here - HeavyHeart to name but one person...), basically my student loan has amounted to a grand total of £15,000 (give or take).

I'm 25 years of age and have been working for 4 years since leaving University and moving back into my parents. Over the 4 years I have managed to pay off my £3000 of CC Debts and Bank Overdraft (fortunately Interest Free) and have been keeping a nice spreadsheet of income/expenditure for the past year and a bit which has allowed me to save £2000 in my ISA

My monthly repayment of £28 to my student loan seems miniscule and everytime I think that I will be paying it off for the next 20-30years, it gets me down and unfortunately I have a tendacy to spend more money when I get depressed! (TVs, new mobile phones etc, going out to drink etc.)

Recently I have been pondering the idea of buying a house for myself, because my sister is moving back from Uni this summer and my mum might be forced to boot out the lodger (which would mean I will have to pay more in rent) but buying a house now seems next to impossible on a very average salary, £15k debt on my head and not enough savings for the deposit. Recently I've even stopped keeping track of my income/outgoings and have stopped saving money, as I think more and more about the fact that I've still not got my own place and house prices are getting higher and higher while my loan seems impossible to pay off.

What would you suggest? Should I lump my whole load of savings into my 15k dept or should I keep saving until I have enough to buy a house? Are there any tips on motivating myself back to saving and keeping track of my money?

Thanks in advance to all.

morg_monster · 11 May 2006 at 4:25PM

There was a poster on here, or maybe on the student board, asking a similar question about their Student Loan. Basically, since student loans are charged a low rate of interest (at the moment it is 3.2% I think), you are always better off paying the minimum each month and keep savings in any account with an interest rate higher than 3.2%, that way your money is working harder for you. Then you could either pay it off in a lump when you've saved enough, or more likely by then, you could use it to pay for something like a car or deposit for a property in full, which would normally have a much higher rate of interest on.

It is a shame you feel so down about your loan. I have one which is about £13000 (when I left uni, more now I guess!) and I never even give it a second thought, because it is the cheapest loan you will ever get in your life! I would never pay it off in lumps, I am just going to keep it slowly wearing down. Remember that as you start to earn more, your replayments will increase, so it isn't like you'll be paying £28 a month for the rest of your working life, it will get paid off eventually (probably more like 10-15 years).

As for the other stuff, hm don't know about that I won't be able to afford a place of my own for a few years yet. And as for motivation - sounds like you are doing really well getting your debts down and saving!! I'm impressed to be honest. But you've o nly done it by budgeting and being really good - if you carry on, think how much more you could save. maybe you could set yourself a target, maybe to save £500 by the end of the summer or something. Targets always keep me on the ball!!!

Emmzi · 11 May 2006 at 4:26PM

Banana,

first of all, well done in not going mad with money from your job and mananging to get some savings together!

You've managed to save 5k over 4 years - even while soending a bit of cash on tvs, mobiles, etc.

Let's say you bought a little flat at 100k. To get the best mortgage deal, you might want a 10% deposit - so 10k.

At your current rate of saving (5k / 4 = 1,125 a year) that'll take you almost 9 years - eep!

However, living at home with mum *usually* means there's a fair whack of disposable income there!! I think someone suggested the third/third/third system - a third for roof over your head, a third for living, and a third for saving. What is your 'average' salary - a thousand a month net, maybe? So that'd take you to 4k in savings a year - ready to put down a 10% deposit in only 2.5 years.

I think it's time for an SOA :-). Let the good people here see where the money is going - help you trim down the non essentials and save money on what you do need - and help you visualise that nice house of your own in the not so very distant future.

nicola1982_2 · 11 May 2006 at 4:31PM

Save before repay when it comes to student loans. It's the only time it makes financial sense. Especially if (and by the looks of your savings I'm think you are) you are a sensible spender who doesn't blow their savings all the time. You're better off saving the money and repaying the loan when you really need to (say for example you decided to move abroad).

lynzpower · 11 May 2006 at 4:48PM

Or when you are buying a house as they will minus off 3x your debt when organising your mortgage ( some lenders, not all, mine did)

Dr.Lou · 11 May 2006 at 4:59PM

Hi Delmontebanana!

Like everyone else says; save before paying off student loans. If you are being charged 3.2% on your loan and your savings are say 5.2% you are making 2% on the savings.

At 25 you are young and it is an excellent time to save. Over time, your savings will grow due to compound interest and the earlier and the younger you start the better. If you need further motivation on this point read ' A girls best friend is her money, Jane Mack / Jasmine Birtles' which explains this really well.

My husband and I graduated from our first degrees eight years ago and only last year (I think) the student loans have been paid off. I agree it was nice to get them out of the way, but we didn't really pay much notice to it at all as the interest rate and the monthly payment were so low.

My advice would be to keep on saving and try and reduce the amount of money you spend on non essential items too.This is a good time to make good use of the time you have living with your parents as when you buy your first house/ move out, your disposable income will decrease as you have more bills etc to pay. Keep at it and you will soon have a lovely pot of money to use as a deposit or or whatever you like.

Keep your self motivated with your spreadsheets/graphs and a fixed goal in mind!!

Best of Luck!

delmontebanana · 11 May 2006 at 5:08PM

Thanks for all the support guys and gals : - ) Will make sure I pay of the interest plus a little more each month for the student loan and the rest I will lump into my savings.

As for the motivation, I think I've got it back from reading this forum! Very inspirational.

Thriftylady · 11 May 2006 at 6:43PM

I honestly don't give my student loan a second thought. I graduated nine years ago and have never reached the minimum earnings threshold (there have been a lot of tears and sleepless nights about that, I can tell you....) But I just don't see it as a 'real' debt. The 'real' debts are the ones that I ran up by being too indisciplined with my money, the student debt was the one I would have starved without and was taken out of necessity.

With hindsight, I would never have gone to university at all, and most of my friends say the same, but thats a whole other discussion......!!!

The_New_Caz · 12 May 2006 at 3:27PM

I was glad to read some of the responses in this email with regards the student loan.

I owe money to a student loan which when added to my other debt makes me worry. As the time needed to pay them all off is forever. However - no one here seems overly worried about paying back their student loans. So if I adopt the same approach even though the amount of money I owe is large it makes it seem so much more manageable.

Out of curiosity would anyone transfer their student loan onto a 0% credit card if it was possible? I have special cheques for one my cards that doesn't treat cheques as cash so I could write a cheque and then carry out a balance transfer as usual.

Imelda · 12 May 2006 at 4:00PM

hi delmontebanana,

I graduated 4 years ago with £4,500 in student loans and I too am in the don't worry about it camp! They are not taken into consideration for mortgages (mine wasn't anyway), although most companies will do an affordability check (ie, can you afford the payments after all your essential outgoings) so it will be included there. You seem to have a sensible head on your shoulders and I thought I did until I moved out and carried on in my old ways (see sig for the damage done in 6 little months!), so be careful.
I wouldn't transfer the debt onto 0% cards, as at least if you lost your job the payments would cease and you wouldn't have to worry about moving it about all the time when the offer period runs out.
Your pay will increase and so will your payments (I started out paying £19 a month in 2002, this year I am paying £165 per month and hope to have it all paid off by September). I just see it as another form of tax.

Dr.Lou · 12 May 2006 at 5:08PM

The_New_Caz wrote:

Out of curiosity would anyone transfer their student loan onto a 0% credit card if it was possible? I have special cheques for one my cards that doesn't treat cheques as cash so I could write a cheque and then carry out a balance transfer as usual.

Hi, No I wouldn't have done. My main worry would be that when the 0% offer ended that it may be difficult to get another one. Also, be careful of those cheques...I don't know about yours, but my husband sometimes gets sent them from his CC company and it seems they charge interest from day one as well as a 2% handling fee I think.

Student Loan Grief

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