Student loan rate / refinancing

[spud989]

Hi all. Need a bit of advice on student loans, please.

Background:

- girlfriend went to uni late and is now a qualified teacher as of next week. Has just secured a job to start the following week! She will earn 22691 gross assuming 1 per cent pay award from September as an nqt, but a bit beforehand too.
- student loan rates increase from 4.6 to 6.1 per cent as of this autumn
- she has around 25k debt
- we live together in a house I own. Value approximately 140k, mortgage remaining approximately 80k.
- I earn reasonable money (circa 50k) and have been overpaying the mortgage to clear early even while she has been reduced to part time hours whilst studying.


I have a personal loan (4%) which finishes in a couple of months and a good credit history. I can get another loan at 3% at a quick glance. Or I could refinance the mortgage (again, 4% or a bit below, need to check).

Both options are significantly cheaper than leaving 25k at 6.1%. I've done some calculations in excel and she will accrue around 130 pounds a month in additional interest but only pay off around 40.

So I'm right in thinking I definitely need to refinance this? I'm quite willing to do it in my name - we have been together a while and I plan on making things more permanent soon (!)

Is the best option to do it as a personal loan for me or remortgage to finance it? Or is it whatever gives the better rate?

Thanks for any and all help!

[Sarnie]

I admit it's been a long time since I was at Uni...............but are they really charging 6.1% for student loans these days???

[spud989]

http://www.bbc.co.uk/news/education-39577507

[romeogolf]

(1) Refinance to clear the debt as soon as possible

(2) Leave it ticking over at low repayments and ignore the interest, knowing that in 30 years any outstanding balance gets written off anyway.

You'll need to work out whether your partner's repayments will increase enough to make a dent in the loan, and whether they amount she pays over the next 30 years is more or less than the cost to you of refinancing and paying it off sooner.

[spud989]

I had a bit of time over lunch and came up with this:

https://ufile.io/l72oq

It's an Excel file which projects the salary of a main scale teacher over 10 years with a starting debt of 25k (although this could be anywhere up to 40k for some teachers, I think, dependent upon course/university etc.).

In Sept 23 the repayments will begin to be more than the monthly interest, providing the interest remains at 6.1%. However, it will never clear the debt after 30 years, even with 20 years at peak salary. It will still have 12k left.

If they stayed at 4.6% then the debt would be cleared in Apr/May 2042, sticking to the regular salary and the rates staying constant.

So basically the shift in rates turns it from a repayable debt into a tax which is eventually cancelled after 30 years.

(cell C4 to change the rate, if interested)


Now I need to sit down and figure out which way costs less over the long term!

[z4RRSchris]

reminded me to call to see where mine is.. £12.8k left at 1.25%

bargain. feel sorry for students these days.

[Phil.]

spud989 said:

I had a bit of time over lunch and came up with this:

.........

Now I need to sit down and figure out which way costs less over the long term!

Don't forget to factor in the impact of potential maternity leave and/or time out to care for pre-school kids, which will impact both on earnings/SLC repayments, and on long term salary growth/career progression.

Sometimes it's more cost effective and preferable from a family perspective to take time out from a career than pay exorbitant nursery fees.

[The Broker]

Don't forget that the repayments are taken net of tax.

[LittleBigPlanet]

You had me worried there, I thought it applied to all student loans (I graduated back in 2005) but it doesn't. Guidance here: http://www.slc.co.uk/services/interest-rates.aspx.

Feel sorry for students!

We took on ~350 graduates nationally last year (engineering consultancy). Fancy a guess at how many applications we had? over 18,000.

[Jimmy Recard]

spud, I thought the rise to 6.1% is only for those earning £41k or greater, so she should be safe from this. I could be wrong.


Did she start her course in 2012 or later? She's doing well to only have £25k student debt if so. If she started before 2012 though, I'm pretty sure her rates won't change.

I've still got some left (no idea how much) but it started much lower and interest was below inflation. It's not subject to these changes like 2012-onwards degrees, as far as I've managed to find out.