Priorities - savings or paying student loan

[AyBee]

I graduated this year with about £20k of student loans - tuition + maintenance (last year to get in on the £1,600 tuition fees , 5 year sandwich course - this would be almost £55k if I started next year ).

I now have a job and obviously quite fancy getting on the housing ladder as soon as possible - bearing in mind that I'm London based now, this won't be happening for a while unfortunately

So my question is this: I currently have all my money in current/savings accounts earning a minimum of 4% although it's not even half what I owe the SLC. Am I better off ploughing whatever I earn/have saved into paying off the student loan asap to the detriment of savings and delaying the flat purchase by however long it takes me to save an extra £20k? I haven't actually started paying it back yet since I haven't passed April but I will be paying £150/month on it once I reach April

Quick maths says pay it back asap but I'd be interested in any alternative views.

Thanks

[MATTP77]

I was told to only repay my student loan on the standard payments, never to pay it off in once or a few installments.

mainly as there is no point with it being such low interest.

but i too would like to have mine cleared.

[Duncanthemad]

Debt is still debt, even if the interest is low (don't have one myself but would suspect it would be taken into account when you want to apply for a mortgage).

The 4% interest on your current savings will be the sqaure root of not very much in real terms.

As someone that recently made it out of debt (after 15 years of loans and cards) my advice would be to pay it off as soon as you can. The stress of having debts (even if you don't actually struggle to make the payments) can be a cruel mistress and should not be underestimated.

The only extra thing I would say, is give yourself some spare so that when you do pay off the loan you don't leave yourself with no savings at all. It will feel less like you're starting from scratch and also gives you some extra protection from unforseen events (like redundancy).

If I sound like the debt/savings version of an ex-smoker, I apologise in advance

[AyBee]

MATTP77 said:

I was told to only repay my student loan on the standard payments, never to pay it off in once or a few installments.

mainly as there is no point with it being such low interest.

but i too would like to have mine cleared.

By whom?

[AyBee]

Since it's 1% above base rate (so 1.5%), is it worth it? If I had savings of £10k paying 4% annually then I'm earning overall rather than losing...yes I still have £20k of debt but it's not costing me anything - the only issue comes when I use my savings to buy a flat and therefore don't have any left to cover the interest

[Maxf]

I paid mine off. Granted they were costing me feck all in interest, but they were still £xxx coming out of my account every month. The extra income was worth more to me than the few £ in interest I lost.

[Duncanthemad]

AyBee said:

yes I still have £20k of debt but it's not costing me anything

That's more-or-less what I was driving at, it could still cost you in other ways (i.e stress).

Since you've posted to ask the question, it's already playing on your mind to some degree (if only a little)

Multiply that by the 12 years (?) it would take to get rid of it at £150/month...

I paid my student loans off in the normal way as I had no choice in the matter (although I did start the repayments before I was earning over the required threshold). I don't remember mine being anywhere near as much as yours though!

[AyBee]

How old are you? It's only about £5k per year for 4 years (Masters) which includes maintenance and tuition fees, like I said in my OP, just glad I'm not thinking about doing it next year where it would be almost 3 times as much

[davepoth]

It's done on the inflation rate rather than the interest rate.

http://www.slc.co.uk/statistics/facts%20and%20%20f...

Under normal economic conditions the interest rate should track above the rate of inflation ideally, making it better to save than pay off the student loan.

[Sarnie]

Duncanthemad said:

(don't have one myself but would suspect it would be taken into account when you want to apply for a mortgage

Incorrect, student loans do not show up on credit files..........pay it off over the longest terms possible I say.

[wolves_wanderer]

Sarnie said:

Duncanthemad said:

(don't have one myself but would suspect it would be taken into account when you want to apply for a mortgage

Incorrect, student loans do not show up on credit files..........pay it off over the longest terms possible I say.

This. I only paid mine off early because I got a large bonus from work (and it was only about £4k for 3 years). I have advised the missus not to bother and it wasn't even considered when we applied for a mortgage. It is nice to be debt free but it is even nicer to have a decent few grand in the bank, you are effectively debt free and you have the ability to dip into it should you need.

[jagman21]

If interest on borrowing is less then that received on savings, which at the moment it is, then it's a no brained, pay as little as possible. The amount gained in interest though the saving will be more then that paid in interest on the sl.

[Duncanthemad]

AyBee said:

How old are you?

Old enough to know better, young enough not to care (graduated in '95)

Upon reflection, I think the general concensus to leave it alone is probably right, I'd forgotten just what good value they are (vs loans in the real world!).

I seem to recall I was paying less than £50/month on mine.

[AyBee]

Think that's a keep the savings and pay it off as and when. Thanks all.

[snorkel sucker]

jagman21 said:

If interest on borrowing is less then that received on savings, which at the moment it is, then it's a no brained, pay as little as possible. The amount gained in interest though the saving will be more then that paid in interest on the sl.

This.

If you have gone straight from uni into a job earning over the threshold to pay off your loan, then another way to look at it is that its money you have never had in the first place to "miss".

You will be suprised how quickly the time comes when it is paid off and, when it is, you will find yourself with a nice "pay rise".

Another note, perhaps of caution, would be to remember that having money saved away is useful for if you ever lost your job. In this case, your loan repayments would stop until you are employed and earn over the repayment threshold. Your savings would be invaluable at a time like this

[dave9]

if you lose your job you don't have to keep paying your student loan repayments as your income dips under the 15k whereas any other commitments are likely to continue
your student loan is at a preferential rate of interest
it may make sense to have some rainy day money built up in an isa which is tax free

its up to you

[AyBee]

dave9 said:

if you lose your job you don't have to keep paying your student loan repayments as your income dips under the 15k whereas any other commitments are likely to continue
your student loan is at a preferential rate of interest
it may make sense to have some rainy day money built up in an isa which is tax free

its up to you

Didn't want to go the ISA route just yet since I'm currently a temp so the money I have is better off in reasonable interest current accounts (although not tax free unfortunately) where I can access quickly if I need to. I will review this as soon as my job turns permanent

[wolves_wanderer]

AyBee said:

dave9 said:

if you lose your job you don't have to keep paying your student loan repayments as your income dips under the 15k whereas any other commitments are likely to continue
your student loan is at a preferential rate of interest
it may make sense to have some rainy day money built up in an isa which is tax free

its up to you

Didn't want to go the ISA route just yet since I'm currently a temp so the money I have is better off in reasonable interest current accounts (although not tax free unfortunately) where I can access quickly if I need to. I will review this as soon as my job turns permanent

Most banks offer an ISA you can dip into whenever you like

[AyBee]

wolves_wanderer said:

AyBee said:

dave9 said:

if you lose your job you don't have to keep paying your student loan repayments as your income dips under the 15k whereas any other commitments are likely to continue
your student loan is at a preferential rate of interest
it may make sense to have some rainy day money built up in an isa which is tax free

its up to you

Didn't want to go the ISA route just yet since I'm currently a temp so the money I have is better off in reasonable interest current accounts (although not tax free unfortunately) where I can access quickly if I need to. I will review this as soon as my job turns permanent

Most banks offer an ISA you can dip into whenever you like

But at a lower rate than I'm currently getting on my current account even though the current account is taxable...i.e. 3% ISA v 4% taxable (lower band) current account...;)

[SplatSpeed]

get your employers to pay it off

tax deductable!