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Education

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Original poster

Repayment of student loan

21 replies

ajandjjmum · 23/04/2010 15:44

Does anyone know how soon you can pay back a student loan? If the money was available upon completion of a degree, could any loan taken be paid back immediately without interest or penalty?

Grateful for any help.

OP posts:

Lizzylou · 23/04/2010 15:46

YOu used to be able to just pay it back, I paid off lump sums.

bluebump · 23/04/2010 15:47

I know you can pay back extra amounts on top of what you are supposed to officially pay back every month but I don't know if you can pay back the whole lot in one go, I don't see why not.

cktwo · 23/04/2010 15:57

The student loans compny will snap your hand off!

pippop1 · 23/04/2010 16:24

I believe there is an optimum time during the year for paying it off. Just check before you do so.

I'm sure I read an article in The Times (absolutely ages ago) about how it is possible to pay it all off but still be asked for more money as they only adjust the amount that you owe once a year. You therefore need to pay it off a month or two before that date, whenever it is!

I also have heard that they are not too great administratively in general (that's a kind way of saying it). So be extra careful and keep good records of what you do.

Lilymaid · 23/04/2010 16:39

I think that interest is added from the moment the loan is made, so the sum owing on graduation will normally be higher than the total amount loaned. I'm intending to pay DS2's tuition fees, so now interest rates are going up again, I need to consider whether to pay these fees upfront.

JaneS · 23/04/2010 16:56

Yes, you can, but at the moment (until September) the interest rate is nothing, so there's not a lot of point. After September, however, it's going to go up to 4 and a bit, so worth doing then if you have the cash.

Original poster

ajandjjmum · 23/04/2010 17:31

That's interesting Lilymaid - I always thought that no interest was applied until after you'd graduated.

I was hoping that DS could use the funds available, and then pay them back (all being well!) at the end of his degree, before any interest became payable.

He doesn't start Uni until this Autumn.

Thanks all for posting.

OP posts:

RustyBear · 23/04/2010 17:37

No, lilymaid is right - the interest definitely starts as soon as you get your first payment.

You don't need to start paying at all until the April after you graduate, even if you have a job, but it is still accruing interest, though as LRD says at the moment it's 0%.

After April, you start paying once you earn £15,000, which as far as I know was the starting level when student loans were first introduced - I wonder what it would be now if the threshold had gone up with inflation?

ant3nna · 23/04/2010 17:56

Interest definitely goes on as soon as the loan is paid out, my SLC yearly statements will testify to that.

ajandjjmum, seen as student debt is one of the cheapest around, have you considered saving the money you were going to give for tuition fees and giving it towards a house deposit instead. If your DS is getting maintenance loans then he'll be in debt anyway and the amount they deduct from wages is the same no matter how much you owe (ie 9% on everything you earn over £15k), you just pay back for longer if you owe more. As a student graduating this year, I know which option would have benefited me more.

Original poster

ajandjjmum · 24/04/2010 21:15

ant
That's an interesting way of looking at it - and I see your point. I'm just conscious that the interest on any savings is so dire at the moment.
Rusty
Thanks for confirming that - my understanding was totally wrong then. Fine whilst the interest rate is at 0% but if it does go up, it could change the whole picture.

OP posts:

ant3nna · 25/04/2010 11:35

The interest rate is going up, they change every September based on the Retail Price Index. Apparently RPI for March this year is 4.4% which should mean that people on the post 1998 loans have their interest set at 1.5%.

If you aren't sure you can do what a lot of my friends have done. Get your son to bung the tuition fees in an ISA (Nationwide have a 1 year fixed ISA bond at 2.75% for instance), at the end of the year, look at what the interest rates are going to be for the next year and decide whether its worth reinvesting for another year or paying that years tuition fees off.
At graduation hopefully you have a nice lump sum which is worth more than your tuition fees or at the very least his loan is paid off and he starts working life with the 9% over 15k still in his pocket.

Original poster

ajandjjmum · 25/04/2010 12:20

Thanks for that ant - really appreciate your ideas.

OP posts:

Lilymaid · 25/04/2010 12:45

"Get your son to bung the tuition fees in an ISA (Nationwide have a 1 year fixed ISA bond at 2.75% for instance), at the end of the year, look at what the interest rates are going to be for the next year and decide whether its worth reinvesting for another year or paying that years tuition fees off."

Can you explain how the annual tuition fees are then paid to the university?

RustyBear · 25/04/2010 13:58

I was wondering that too Lilymaid!

RustyBear · 25/04/2010 14:01

If you borrow money for the tuition fees from the Student loan company, you don't actually get it paid to you, it goes directly to the university.

lazymumofteenagesons · 25/04/2010 15:54

I think what ant means is that if you have the funds available and are deciding whether to take loan or not you : take the loan which pays the tuition fees, but put the equivalent into this ISA which currently pays more interest than that owed on your loan. Each year when the new interest rate is published decide whether to pay off loan or reinvest. That way by time they finish you have made more on your investment than you owe on the loan.

ant3nna · 25/04/2010 17:55

Yes, I did mean take the loan and put the money you were going to use to pay the tuition fees in the bank.

Original poster

ajandjjmum · 26/04/2010 09:33

I must be incredibly thick. From all the hype I honestly thought that no interest was applied to student loans until after the student had finished their degree - and then it started adding up - albeit at a low rate of interest.

OP posts:

RustyBear · 26/04/2010 11:14

It's not always that low, aj&j - one year the loan rate was 4.8%, because that's what the RPI was on the day the rate was set - but it dropped almost immediately and by September RPI was down to less than 2%, so for his second year DS was paying interest at twice the actual rate of inflation.

ant3nna · 26/04/2010 11:19

A lot of people I know at uni thought the same thing - until they got their first annual statement with lots of interest added.

Interest is set at either the March RPI figure (4.4%) OR Bank of England base rate plus 1% (so currently that'd equal 1.5%). Of course this last year the lower was actually negative and the powers that be ignored the actual rules and gave a 0% rate so there are rumblings that the rate might be much higher. The final decision is in August so you will have time to decide what to do.

Lilymaid · 26/04/2010 11:24

I have a vague recollection that, at one time, interest wasn't added until after graduation, but that certainly hasn't been the case for some time. DS1 graduated in 2008 and he had to pay interest from day he got the loan.
He didn't have a tuition fee loan and tuition fees were only around £1100 for 2005 entrants, so I paid those upfront. Now I have to do something similar for DS2 but the tuition fees are nearly 3 times higher (which is considerably more than my pay has risen in the last 5 years)so he has applied for a tuition fee loan and I'll see what my savings are like by the autumn as to whether I pay it off immediately or not.

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