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Original poster

Paying off student loan with lump sum?

21 replies

itsinthebank · 02/02/2019 08:27

We have £65k (inheritance), and DH has student loans of £25k. Should we pay them off in a lump sum? I know I’ve read that the student loans should be the last debt you pay off but what if you don’t have any other debts...?

Further details - we own a house (no mortgage) worth about £250k, and have been planning on taking that & the £65k for a bigger deposit on a new house (moving areas). But maybe we should prioritise the student loans. It just feels like an extra tax coming out of the pay packet, but it will actually be about £300 a month deductions with DH’s new job...

Thoughts from the financially savvy?

OP posts:
TulipsInbloom1 · 02/02/2019 08:29

Which has higher interest? The loan, or the mortgage on the new house? Throw the 65k at whichever is higher.

brizzledrizzle · 02/02/2019 08:32

Purely from your point of view the mortgage would be a better deal if you were to split up as if you kept the house then you'd be paying the mortgage so making it smaller now would be a wise decision. Sorry to be the voice of doom and gloom but life throws lemons from time to time.

Original poster
itsinthebank · 02/02/2019 08:32

Good question, we are actually moving back to the UK next week & don’t have any student loan paperwork here so actually no idea what the interest is (haven’t been paying it from overseas) & getting a new mortgage is at least 9m away as need to have a few pay checks first I assume, so that is hypothetical too! I imagine the mortgage would be higher interest as I’m reading lots of doom & gloom...

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Original poster
itsinthebank · 02/02/2019 08:33

brizzledrizzle, that is a very interesting point as the inheritance is from my side of the family! We totally operate with shared finances, DH has been sole breadwinner most of our time, but it has crossed my mind. I don’t have any student loans outstanding.

OP posts:
Voldethought · 02/02/2019 08:33

I'm no expert but I wouldn't pay a student loan off. Most people never pay them off completely as they are written off after x years or if you don't earn enough. How would you feel if, say, DH had to give up work through sickness or lost his job, knowing that you had paid a lump sum out which legally he was no longer required to pay? That money would be bettter off invested in savings , in a house etc. where you could access it in emergency. Check out Money Saving Expert to see Martin Lewis' views on the subject.

RoseAndRose · 02/02/2019 08:33

Only pay it off if you still have plenty to buy the house you want neand no other bills (for either needs or wants, including minor works and redecoration).

Having a student loan does not 'count' against you in a mortgage application, but the amount they lend you will be based on income net of repayments. Size of deposit also matters in terms of amount they will lend you. You need to compare both scenarios. Bigger deposit may well be more cost effective.

But it does sound as if you hate being in debt, even a student loan. In which case, as long as the sums add up reasonably well, pay it off. Your attitude is also something that matters.

What does your DH think? And is he likely to move to a higher paying job (with higher repayments?)

GertrudeWilloughby · 02/02/2019 08:38

Check out money saving expert. Martin Lewis has a lot of info about student loans. Worth looking into.

PinkOboe · 02/02/2019 08:38

How old is the student loan? I had a letter offering me a settlement deal a few months ago. Mines due to be written off in a few years and they’d clearly rather recoup a fraction of the actual amount then get nothing

voxnihili · 02/02/2019 08:39

I'm not particularly financially savvy and decided to pay my loan off. My repayments were also in the region of £300 per month. For me, it was the right decision as the money would probably have just been frittered away but the extra £300 per month has made a massive difference.

That said, I didn't have a mortgage, and it wouldn't have been anywhere near enough money for a deposit so there wasn't a better use for it at the time. It was also my money, paying off my debt - I'm not sure I would have paid off my partner's loan with it.

voxnihili · 02/02/2019 08:41

That's a good point about the majority of loans never being paid off. Given my income, I would have paid mine off. The interest in savings was less than the interest on my student loan.

DinoGreen · 02/02/2019 08:48

I paid mine off with some inheritance. That said it wasn’t a huge sum (approx £10k - I went to uni in the days of £1k tuition fees!)

I’m not sure I agree with “most people will never pay it off”. Any job with a salary of about £30k (not a huge sum for professional roles) or more you will pay it off eventually. Unless you are a very low earner or SAHP, in which case it’s different.

brizzledrizzle · 02/02/2019 08:57

brizzledrizzle, that is a very interesting point as the inheritance is from my side of the family!

In that case I'd be investing it somewhere else and getting tucked up in a nice little trust that only you can touch. Don't pay his student loans off with what is your money for heavens sake. If you do pay off the mortgage with it then make sure you've got proof that it is what you have done - I'd see a solicitor to see what you can do to protect your investment.

AJPTaylor · 02/02/2019 08:58

My dd will never pay hers off unless she wins the lottery. She left uni with 50 k student loan. She pays 9 per cent of her salary over 25k. 2 years after graduating she has just got to 25k. If she earns 35k She will be paying 900 per year.interest being charged by the student loan company is 5 per cent. So she isn't even covering the interest accruing. And that is before any years where she may not pay anything due to maternity leave or part time hours.

BertrandRussell · 02/02/2019 09:05

How much do you have to be earning/how much loan did you have to be paying back £300 a month??

Hanuman · 02/02/2019 09:09

I was paying 300 a month when I was earning about 50k.

This all depends a lot on which type of loan you're on. If you're on one of the older types, if you earn 30k plus you are likely to repay it. If you're on the newest type, you need to be earning 50k plus. Martin Lewis's site is great for setting it all out clearly

Topofthehills · 02/02/2019 09:13

Here's the site people are mentioning laying it out. The interest rate on student loans is different depending on when he studied.

www.moneysavingexpert.com/students/student-loans-repay/

FlipF · 02/02/2019 10:01

You need to sit down and have a proper look at the actual numbers. I don't think you can make a proper decision without them.

Kezzie200 · 02/02/2019 11:07

Interest rates vary plus the student may not pay it back, but maybe they will. What sort of job are they likely to get and/or will they be working in London where pay rates tend to be higher?

PennyMordauntsLadyBrain · 02/02/2019 11:11

I wouldn’t be using an inheritance from my side of the family to pay off someone else’s debt, especially if you’re not earning yourself or if you have a reduced income due to caring responsibilities.

If you don’t have any immediate use for it I’d maybe treat us to a mini break or something and put the rest into some savings

elemenopeee · 02/02/2019 11:14

It depends which plan your on. If you're on Plan 1 then yes pay it off (chances are you will anyway, and this way means you'll get more money in your pay month on month).

If it's a new style loan with £50k on "debt" - absolutely no to paying it off!

elemenopeee · 02/02/2019 11:14

you're!!!

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