UK Student loan advice - To pay or not to pay
For those of you who graduated in the UK with substantial student loans, what advice would you give someone who will be in the following scenario straight out of uni:
- Earning over 40k in graduate job (under 3k/month post-tax)
- Of which at least 1k will go to rent
- With just over 50k in debt.
Options:
- make an effort to pay it off, or
- save money and invest while wait for it to be cancelled in 30 years?
I understand I will end up paying more down the line with option 2, but at least I could invest it in ETFs or save up for rental property down payments (not necessarily in London or even the UK) which would help down the line
bump
The answer to this all depends on whether you believe that your savings account/investments will yield more than the student loan interest (on average). The amount of loans, nor your salary really matters to this question.
Average student loan interest (if you're paying in the top bracket) is supposed to be about 3% + RPI (which totals to about equivalent to 6% if you believe the BoE can keep CPI at 2% over the long term).
So simply put, if you believe your invested money is going to earn more than 6% in the long term then put your money in investments and only pay minimum loans. If you don't believe this then it is better to pay off your student loans with max capital.
Personally I am in the former category.
Thanks, I guess $JPM 11y bonds it is!
No point paying off UK loans. It's just a uni tax anyway.
It comes straight out of your salary anyways (well mine did anyways) but I don’t know if this is only if i you’re in the highest tax bracket straight from Uni.
Although I work in the US now I studied at university in the UK (have British citizenship from one of my parents) so had student loans whilst working in London for a while after.
Personally I would say don’t bother overpaying the loans - I mean what’s the point? The interest rate gets a lot of attention in the media but it’s somewhat irrelevant, in that you only pay 9% of what you earn over £25k (I think). So even if the amount snowballs and becomes so large it can’t ever be paid off, it just means you’ll have a 9% “graduate tax” effectively which isn’t the end of the world, compared to having a regular loan.
Also it’s somewhat out of your control tbh - as you start to earn more you will find your payments go up exponentially (as it’s a flat 9% on everything above £25k), so for instance when I got my first IB bonus I ended up involuntarily paying off nearly 25% of the loan in one payment lol! Sucked to have that taken out of the bonus but meant I ended up paying it off very quickly as my career progressed.
But if you overpay it as a lump sum and then lose your job say, you can’t get that money back from the Student Loans Company - so personally I think much better to incur interest and have a loan that is only repayable if you’re earning over £25k, and have a nest egg of savings to draw on if needed.
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