Like many, I left university with some debt. I’m probably one of the lucky ones though, as it wasn’t a huge amount, compared with the average figures that students are accumulating these days, plus all of my debt was in student loans – no overdrafts, credit cards etc.
I’ve been wondering recently whether I should be paying the loan off, so that it’s not lying around waiting to be repaid at a later date, but common sense would say that as student loans are some of the cheapest form of debt, and because they can easily be deferred until you’re earning over a certain level, then it makes sense to keep deferring repayment.
If you’re in the fortunate position of being able to afford the repayments, yet do not earn enough to have to pay back the loan, then ideally you should find some sort of savings account (Cash ISA?) that pays more interest than the interest rate of the loan (the rate of inflation, 2-3%). That way, you can build up your savings, to eventually pay off the loan, and the amount you pay back will effectively be less, because the interest you’ll have earned should be greater than the interest you pay on the loan. Does that make sense? The savings to be made won’t be huge, so you might consider it better to get rid of the debt so it’s not hanging over you than trying to make a quid.
By the way, it probably worth mentioning that I come under the rules for those starting courses before 1998 – I believe students starting after that date may have different rules for repayment.
The one thing about paying off a loan early. They won’t give you the money back if “something comes up.”
Let’s say your student loan is at 5% and your savings account is paying 3%. You have an extra $1,000 to set aside. Without factoring in risk, paying off the student loan is an easy decision.
Unfortunately, life is not without risk. Two months after you pay down the loan, you absolutely must have $1,000 for an emergency. Without the $1,000 in savings, you might be required to borrow the money at 15% on your credit card.
Having cash in hand gives you options and options have inherent value.
I think it’s best to delay it, although the system I’m referring automatically taxes your earnings once your making a certain amount, so I don’t think you have much of a choice.
I was under the impression that if you failed to make a single payment or left the country for 5 or more years, your loan would automatically be cancelled.
I am able to reduce my student debt since I started to sell my essays online and my monthly earnings allowed me to work less and concentrate more on my studies. Before this, my main concern was where to get the extra cash, but now I can afford to sit back and relax.