Active discussions

Meet the Other Phone. A phone that grows with your child.

Meet the Other Phone.
A phone that grows with your child.

Buy now

Please or to access all these features

Talk
Money matters

Find financial and money-saving discussions including debt and pension chat on our Money forum. If you're looking for ways to make your money to go further, sign up to our Moneysaver emails here.

Original poster

Better to have debt or savings?

15 replies

BigTeuchLittleTeuch · 07/02/2009 08:34

I have a student loan, which I have been deferring for 10 years and am still eligible to defer - for around £7,000.

I am now in the position where I have enough savings to pay this off.

In the current climate, which would be better?

Pay off in full?
Start paying monthly, from savings?
Defer again?

I should point out that the repayment terms are quite inflexible - a fixed amount over a fixed period of time - so I couldn't pay a smaller amount each month, iykwim.

Ta!

OP posts:
Original poster
BigTeuchLittleTeuch · 07/02/2009 08:38

interest rate on Student loan is fixed at 2.5% btw.

OP posts:
Sidge · 07/02/2009 08:49

If the loan would cost you more in interest than you will gain from your savings then would it make sense to pay it off?

HeadFairy · 07/02/2009 08:51

Interest charges on loans are always higher than interest payments paid out on savings (even when we don't have insanely low interest rates) so it's always better to pay off debts, even if it means using up your savings.

TrillianAstra · 07/02/2009 08:55

In normal times the interest rate on a student loan (as opposed to any other loan) is less than the interest rate on savings, so teh advice would always be to keep saving and only pay it off when you have to. But right now savings are earning very little, so you might as well pay it off.

Paying it all off at once seems like a good idea, but do you then have an emergency fund or would that wipe out all your savings?

Original poster
BigTeuchLittleTeuch · 07/02/2009 08:57

I just read that the loan has a 'lifespan' and is wiped out after 25 yrs or when you turn 50...

student loan is inflation rate, so technically there shouldn't be any real cost in interest, apparently!

OP posts:
mrspnut · 07/02/2009 09:03

I would just carry on deferring it, because you never know what's around the corner.

If you pay it off and then suddenly need the money for something then getting a normal 7k loan would be a lot more expensive and there wouldn't be the deferment option.

HeadFairy · 07/02/2009 09:04

Don't they automatically start taking payment once you earn over a set amount? I thought that was how they got round people deferring it until they're 80 or whatever.

TrillianAstra · 07/02/2009 09:18

I think this is right:

New style loan: once you earn over £15,000 they take 9% over that £15,000.

Old style loan, you can defer payment while you earn under £25,000, once you earn over that amount (or when you decide to start paying), you pay £90 a month. (numbers might not be quite right)

Student loan should be at rate of inflation so shouldn't cost anything in theory. But at the moment it's pretty hard to get savings that earn interest at the rate of inflation. So if you really definitely don't need the money and definitely aren't going to need the money then you might as well pay it off.

TrillianAstra · 07/02/2009 09:20

Moneysavingexpert has some advice, but I don't think it has been updated for the ridiculously low levels of interest that most savings accounts are producing at the moment.

mileniwmffalcon · 07/02/2009 09:25

i'd keep deferring if i were you, interest rates are unlikely to stay this low for ever and once they rise again it will be a good deal again, and it's possible you won't reach the repayment threshold in the next 15 years, in which case it will be written off. if you do reach the threshold you'll be earning enough for the repayments to be manageable.

Original poster
BigTeuchLittleTeuch · 07/02/2009 11:40

I've just had my 2nd child and intend to keep working part-time from home for the forseeable future - this is unlikely to take me over £25k a year.

OP posts:
saramoon · 08/02/2009 09:56

I have a student loan from 1992-1995 and defer every year cos i have never earnt over £25K. Work part time so for me too it is unlikely that i will earn over that for the foreseeable future. Is it true that when you get to 50 they write it off?

Fizzylemonade · 08/02/2009 15:39

I am like saramoon, I have a student loans from 1992 - 1995 that I have never earnt enough money to pay it back.

I have deferred and deferred and now I am a SAHM and have been for 4 years so it will never be paid back.

It doesn't ever count (or doesn't for me) against anything when you come to take out a mortgage or credit card so why would you pay it back???

Keep your savings!

LaTrucha · 08/02/2009 15:52

Are you at all likely to train as a teacher? When I trained, the governent paid them off. I already had though. And I knew I was going to train. Why did I do that?

Original poster
BigTeuchLittleTeuch · 10/02/2009 09:03

thanks for all your input - I will definitely defer thsi year and see how things go with interest rates, etc.

We are self-employed and looking at ways to develop the business so keeping the savings seems more sensible at the moment.

Roll on 2024

OP posts:
New posts on this thread. Refresh page