WWYD - pay off your student loan or defer?

[solitarywalker]

I am not currently working due to ill health, and can see no light at the end of the tunnel, sadly (I would love nothing better than to have my illness sorted out). I am therefore eligible to defer my student loan repayments (I owe about £4k).

However, DH recently inherited some money when his DGF died. We could now afford to pay off the loan, with plenty of cash to spare. I feel that we should, because I don't want younger people to struggle because of a high default rate on loan payments. My argument is that even though I am not able to benefit from the education myself at present in employment terms, I am benefiting by how much it has enriched my life.

However, a close relative says that this is crazy and that the money just goes to a private company and not the state where it will help other people. She says that we should take what we are entitled to and defer for as long as possible, and use the money for other things. She points out that the money is DH's (though our finances are very much treated as in common) and that we could give it to charity instead.

WWYD?

A private company bought chunks of the debts (at a fraction of the cost), so you will be paying them back and not the SLC. If you're not eligible to work due to a disability your loan gets wiped so you don't have to repay this (I'm hoping someone else will confirm this as I'm 80% sure). You don't have to keep deferring it, just get in touch and tell them that you're disabled and unable to work. They may ask for medical letters. www.slc.co.uk/services/loan-repayment/loan-cancellation.aspx

I'd get in touch with them, explain that you're not working, disabled and likely to never work, then put the money in a savings account for things that you may need in the future.

You are eligible for deferment. Your DHs good fortune is not factored in, it is his, not yours, you need not feel guilty about having it with your SL still existing.

LadySybil's link explains how to, get on there and get it sorted.

I say that as one who paid off her SL very quickly, as a good little socialist would. The rules for deferment are there for a reason... use them!

Oh, sorry, I didn't mean to give the impression I am permanently disabled! I just have an illness that is dragging on and on and on due to incompetent doctors. I seriously hope that I will be able to work again one day - though whether I'll be able to earn enough to be eligible for repayments is another matter. (My loan is one of the pre-98 mortgage style ones, so I have to earn about £28k before I start repaying).

I guess the real question is: am I morally bound to pay this back because I can and it will benefit others, or will I just be quixotically chucking money at a private company?

How long have you had it? You know they get wiped after 25 years anyway depending on when you took it out?? (see the link). I don't think you are morally bound, no. If you'd had started uni a few years earlier you'd have been entitled to a full bursary which didn't have to be paid back. Your circumstances at the moment mean you can't pay it back, it's not your fault. It would have been sold for a fraction of the cost of the loan, the company will expect you to repay all of it so they will be making a whacking profit from you.

I do what suits you best. But don't pay it off in the expectation you will help present day students. I don't think you will. If you think you will return to work and start paying it again anyway then it might be worth paying it off now as it will be gathering interest as time goes by.

It's true it doesn't go to the government but to a private company (debt collection agency) who bought it for approx 20% of the value.

Morally - fuck them.

If you think you may ever earn £28000 in the near future - pay it back.

BTW the threshold is calculated every year based on a % of the average full time wage (I think I've got that right)

It had only ever reduced one year by a couple of hundred pounds, always went up by a few hundred each year. Until the year after they were sold off when it went down by £2000. Very dodgy.

I had the same type of loan, and came into money (redundancy) so paid the balance in one go- it felt great!
The loan does have interest on it so even though it's a low interest it's still getting bigger.
I looked at moneysavingexpert.com they had some good advice about paying the loan vs putting the money in a savings account- basaically how to get the best "value" for the same amount of cash IYSWIM
The whole student loan system is messed up- whether others can go to uni sin't eown to you so don't beat yourself up about it, although if you feel bad why not make a (small) donation to the NUS or your old Uni

I would (and do) defer.

I took it out in 1997-1999, so it's one of the mortgage-style loans where you don't pay a percentage of income but a set amount each month. I am not sure when it would be cancelled - it's quite hard to find info on these very early loans

I am now 36. I've spent the intervening years doing postgraduate study, and then had to give up a career to care for a sick relation. After that, I gt divorced and had a rotten run of luck with an illness, so I have only paid off about half. I am currently between operations on the NHS! I am not claiming any benefits at all from the state - we are living off DH's wage, which is around £50k a year. We have a modest house and inexpensive tastes and we live in the north so I have no complaints at all.

Then we inherited this money recently, which means we suddenly have an amount of savings and could afford to pay off the debt. I was all set to do this until my relative went apeshit and said that we'd be benefitting no-one to pay it off! She thinks this is like throwing money at an evil corporation and would be morally wrong, and that we should give the sum to charity instead.

I am totally confused as to what the right thing to do is!

One thing to keep in mind when you're deciding whether to repay or defer is if you are likely to need the money again in the future. Student loans are (in real terms) one of the cheapest forms of borrowing available, and they are much more flexible in terms of how and when you repay them than a loan from a bank. Think carefully - if you urgently needed to replace the car/boiler/roof, could you afford to do so? If you repay this money and then need to borrow in the future from the bank, it will cost you more in interest than your student loan is costing you.

You might find this from Money Saving Expert helpful www.moneysavingexpert.com/students/student-loans-repay

I think she's got a point to be honest. Keep the money in an ISA, and if you're well enough to return to work before the 25 years is up, then repay it.

You shouldn't give it to charity! It's money you do owe. Make the decision based on practicalities. If you are likely to go back to work and have to pay it again then pay it off now if it's unlikely you should go back to work then just defer it.

That's a good point.

I have to believe that I'm going to be able to go back to a normal life again at some point. I would lose all will to fight on otherwise. However, I am hoping to have a career change when I do (I am currently using what energy I have to write a book and a blog to place myself well for this. It is going slowly, though, as the drugs I'm on have cognitive effects and my head isn't very clear at times). So I might not earn the requisite £28k before the 25 years are up I guess.

I suppose the question is: I know I'm entitled not to pay it according to the rules, but is that morally the right thing to do when I could afford to do so??

I would defer, you're allowed to and it gives you time to think about it. Do you and your DH have any other debts? If not, defer your loan, invest the inheritance so it will grow and then one day you'll be in a better position to decide whether to throw a lump sum at it or not.

If it wasn't morally right they wouldn't have put this into the rules I think it's more morally wrong for a load of MP's who have benefited from a free University education to bind future young people to years and years of debt.

I also thought of those MP's LadySybil. The OP has not deliberately taken a low paid job or done anything else to avoid paying back the loan. You are doing nothing illegal or even morally wrong.

OP, I am in the same situation as you in that I am 36, took out 3 mortgage style student loans from '97-'99 and due to a combination of post graduate study / working in lower paid arts jobs have never earned anywhere near the 28k needed to pay it back. Last year, my debt was transferred to Erudio student loans and I have continued to defer it. If I were to inherit some money, would I pay the loan back event though I didn't have to? I think it depends how much money I inherited. If it was significantly more than the loan amount, probably, yes. If it was a similar figure to the amount I'd borrowed and paying it back would leave me with no contingency fund, then I'd hang on to it.

Do not pay as long as you can defer.

Mortgage style and not income-contingent loans, yes? Firstly the interest rate is inflation and the collections regime is soft so prioritise higher-interest debt.

Furthermore the loan is written off after a certain time if not repaid. It's also written off if a doctor says you're not likely to be able to work again. It doesn't matter if the doctor turns out to be wrong, although you obviously can't mislead him or the debt owner.

You don't know what might happen one day that will mean your debt can be cleared, but if you pay it you can't get the money back later if your illness gets worse.

Defer. That would be my choice.

If you have other expensive forms of debt (credit cards, other types of loan etc.) then clear those first.

If you have a mortgage and would like to reduce it or shorten the term of it then this is also usually possible. If you are still within the penalty period then you can usually still pay off up to 10% of the capital each year, so check your terms & conditions and/or clarify with your lender. It all helps to shorten the term of the mortgage, and save you much more in the long run than it generally costs. We have just done exactly this, also funded by part of an inheritance.

If you have no other debt then as someone else already suggested, look at ways to invest the inheritance. With a good ISA or other investment account the inheritance may well grow significantly. Consider whether it might be worth consulting and Independent Financial Adviser (IFA).

As for morals, I think the government which introduced huge debt to students was morally wrong to do so (think it was John Major's one, but may be wrong). Your loan is very small now at £4k. You have done well with it. You have the option now to defer paying, with the distinct possibility that you may never have to pay it again, and in a few years won't any remainder be written off anyway?

Use the terms & conditions of your loan to your advantage. They were what you signed up for, so nothing wrong with doing that. Why throw £4k out to line the pockets of a debt collector when you don't have to and could use it to better effect elsewhere.

Not all debt is bad. Some can be used to advantage.

I've never understood why people go out of their way to repay a student loan. I think the same as Martin Lewis. Pay back the minimum you have to. If that's zero then fine. What he says (someone linked to it above) makes so much sense.

I would defer. The impact you paying it off (or not paying it off) would have on subsequent student debt would be absolutely miniscule - particularly when compared to the impact the windfall you've had could have on your life, IYSWIM.

Do you have / are planning to have DC? You could put some of the money away to put towards university costs for them? (That would certainly seem apt...). I also thought a pp's idea of donating some money to your alma mater was a good one - if you ask it to go into a hardship fund it could have an immediate and appreciable impact on the experience of a current student. I feel like all of these would have far higher positive results than, as others have said, throwing money into the hands of a debt collector.

If you repay it will go to Erudio, a private company. It will not benefit current students.

If you want to know how "moral" this company are, take a look at the thread Erudio thread

Defer. You are entitled to.

If you and your husband can pay it off, then I would do so. It would be something off your mind and a clean slate. Never mind the politics of why you needed the loan in the first place or what the " moral" thing to do is. Wouldn't it be nice to be free of it?

Providing it's the official Student Loan and not additional debts run up while you were a student, I would defer for as long as you can. It's unlike any other loan you'll ever take out.