Getting older - Pay off student loan or not?

[catfunk]

I've never quite worked out what to do here so hoping someone can help.

Almost 40, due to taking a while to get my career off the ground I still have 6.5k left on old style loan (2005 grad) interest rate 3.25%

Earn anything between 35-40kpa. (Get bonuses) so monthly repayments usually around 100-200pcm which annoys me!

Have some savings which I could use some or all of and wouldn't leave me too short

Have shared mortgage on low interest rate for another year & make small monthly overpayments already

WWYD ? I'm hopeless with figures. MSE says it's not worth paying it off I think but all the examples given are of younger grads not people my age !!!

If you are likely to pay it off anyway then I would probably pay it. I think the MSE advice is for lower paid people who will never pay it off and also it's a much larger amount nowadays that students have so less likely to pay it off in an average career

Thanks, I'm confused about the interest etc and what it will cost me/ if it's worth it !

While the interest rate is 3.25% you can beat that with savings in a regular or fixed product so you could put money in such an account to offset the interest.

Then it's making money for you so worth letting it run it's course unless you'd prefer to reduce your outgoings by paying it off do the payments stop?

Will the interest rate increase at some point? That might be a trigger to pay it off faster, but don't leave yourself short of savings for emergencies or large expenses.

As you're on a low fixed rate mortgage I wouldn't be overpaying that right now but save the money instead.

While the interest rate is 3.25% you can beat that with savings in a regular or fixed product so you could put money in such an account to offset the interest.

Then it's making money for you so worth letting it run it's course…

I don’t understand this bit @BarbaraofSeville - how would it be making money for you by putting (presumably you mean) an extra chunk of money into a savings account?

@catfunk if you have savings to pay it off and it wouldn’t leave you short, it would make sense to me to pay the loan off. Then you’re saving yourself all the interest you’d be charged over the term of the loan.

Then if you want you can divert what would have been your monthly loan repayments into your savings, and gradually replace the savings you’ve used to pay off the loan.

The interest on £6.5K at 3.5% is £227.5 a year.

If you kept £6.5k in a savings account at a rate of 4% that would be £260 a year.

So if you had £6.5k in debt at 3.5% and £6.5k in savings at 4% then you would be earn £260 - £227.5 = £32.50 a year from not paying the debt off.

£32.50 isn’t much so It depends if you think you might need the savings for a new boiler or to help when your mortgage rate goes up for example.

I knew people who took out student loans when they didn’t need them for the sole purpose of putting it into savings accounts and earning the difference. Arbitrage.

Ah okay thanks @RandomPerson42

Pay it off. The relief you'll feel is immense, and you'll be able to recoup the savings by having an increased wage. Honestly it feels great when it's gone.

I would only pay it off if you have maxed out your isa allowance, have enough cash savings to cover any reasonable emergencies without needing to access higher rate credit, and all other debt at higher rates is gone.

At that interest rate the debt is
shrinking against inflation and even with a cash saver at 4% (also losing money against inflation) you are better off pocketing the difference in interest, and better off again if it avoids needing a higher rate deal on a car or boiler replacement etc.

That said I cleared the last few grand of mine as I was finding the marginal rate the repayments left me with on additional
work was putting me off developing my career. It didn’t make financial sense but it
was useful for me.

I don’t think it makes sense to pay it off because if anything happened whereby you stopped earning or stopped earning so much you wouldn’t have to pay it anyway. There’s no risk from having it. That’s not true for your mortgage or any other debt. Put some money away in a high interest savings account instead.