T Nation

Paying Off Student Loan in One?


Right now I have about £16,000 in the bank. That's more than enough to completely pay off my student debts I accrued over the course of 4 years at uni. I don't know exactly how the US system works, but in the UK your student loan has an interest rate, however you don't have to make mandatory payments as such. A percentage is taken out of your salary every month depending on your earnings.

So, if you are unemployed, or earning below a certain threshold, you don't even have to pay it. However, I have been employed, and have been making the minimum repayments based on my income. Not much, but it's enough to chip away at it and stop the debt getting bigger.

So, as it stands, I could wire the money to the student loans company, and be 100% debt free in one big swoop. It would be a liberating feeling. However, I'm thinking i could be smarter, and invest in something. Only I don't know what.

What would you do?


Wish I could help. I've got 16k student loans + 25k professional studies loans - didn't manage to get the job, and now I'm going to be bleeding to the tune of 50+k. Your situation makes me weep. If I ever find you, I'll kill you and take your money.

I'd be tempted to get it over with in one go, but the interest on LEA loans (that's the one you have right?) is really quite small right? I graduated about 3 years ago, just before there was a change in the tuition system, so it might be different for you?

I'd be more tempted to use it as a deposit for a house/mortgage. (Serious)

Or you could opt for a trip to Vegas and see if you can blow the money in 48 hours ...

If you're earning well and its a relatively secure job, I'd pay back in smaller chunks I suppose, because the interest is tiny?


depends on your immediate and close future circumstances. do you have a job, responsibilities(pets/baby etc), supportive parents who will put you up?


Almost every financial planner I've listened to advises to first get out of debt, then begin building your wealth.


How much more is 16k than your student loans? Do you live with parents or rent/own a home? Do you have a car payment?
I ask because paying off your loans is a smart idea however you don't want to be broke. It's a good idea to keep 6 months (or more)wages in the bank in case of emergency. In 2008 I got laid off, had $35k in the bank by the time I got another job I had $800.


If you have job security and the extra funds available, pay off the debt. If job security is questionable, pay off like half of it, and keep enough so you could live off for a while, like DDay said.

I lost 4 jobs in 2009 and was unemployed for close to six months (a few months into 2010) because the last place decided to let me go towards the end of the year. my losses were not as bad as dday's, but they could have been much worse, as I was in the process of buying a house and didn't see the last layoff coming at all.


Did you inherit this £16,000 or save it up over a period of time?

I'd probably pay of the debt in one go, but if you can find something that will give a higher return than the interest you'd be paying on the student loan, and you're confident enough to take whatever risk it involves, then go for it.

But yeah, what iron dwarf said...


Get out of debt first, absolutely no doubt about it.

Living with no one having any kind of hold over you is the best way to go if you have the opportunity.


First good to hear that you went to uni and got an education. It should pay dividends in years to come.

Being debt free is certainly a good feeling. A lot depends on your short and long term goals.
16k could go a long way to helping you get a deposit for a mortgage, for example. (Then you will have two lots of debt)

But there is good debt and bad debt:

  • Maxing out a credit card to buy shit you don't need or will never use = BAD DEBT.

  • Taking out student loans to get a B.A or Masters is a good investment = GOOD DEBT.

  • Taking out a mortgage to buy property is a good investment = GOOD DEBT.

Just having the money sitting in a bank is not really a good idea. Even today's best tax free ISAs are only paying around 2.75% interest. It would take you 3 years to put the whole 16k into an ISA due to the 5k ceiling per annum. 16k @ 2.75 % per annum is 412.50 (four hundred and twelve pound and 10 shillings) not exactly a princely sum in interest and harldy beating that bastard, inflation. However ISAs are tax free and if/when the economy improves the interest rate could go up to a healthy sum.

Remember: Compound Interest is a Man's Best Friend.

Buy Premium Bonds. Waste of time. The chances of winning as too slim. You would be better off keeping the money in a current account and using the monthly interest to buy Euro Lottery Tickets. Much better chance of winning a million clams.

If you have saved the 16k from earnt income, then you are a good saver and basically should pay off the student loan in one foul swoop and wash your hands of it. You will be able to save up 16k again in the future.

Personally, I would be inclined to find the two birds in your avatar film and present each of them 8 grand to stay the weekend at my house.


Owing money on your student loans is fine. If anything it's going to help you build your credit (just don't miss any fucking payments, ever). What kind of interest rate do you have going on your student loans?

I realize it's nice and dandy to be debt free, but it ultimately depends on your goals and generally for a future working professional isn't a good idea. Student loans in general have a fairly low interest rate (at least here in the US) and it wouldn't be hard at all to outperform that interest rate with a fairly simple investment in a portfolio of mutual funds/bonds.

IF you you invest it, you're going to have the power of compounding it (always have your dividends and capital gains reinvested) and you'll be quite surprised at how fast it'll grow.

Also, are you employed/planning on being employed? If so, your employer will likely offer you some sort of retirement vehicle which can be rolled over to your next employer if you leave. Maxing out early contributions ESPECIALLY with an employer match to a certain percentage will yield you massive dividends in the long run. Depending on your situation it can lead to hundreds of thousands more towards retirement= retiring early or buying that cabin in the mountains with cash when you want it. You should try to make your money work FOR you.

You have a lot of options, but my general advice would be NOT to piss it away (it can be hard sometimes). Look at your interest rates, your goals, loan stipulations, and your future and always nestle a little away for cash emergencies and rainy days.


It just comes down to a simple equation. Do you have any potential investments that would pay greater return than your current interest payments. If you pay 10% in interest and your investment only returns 9% you are negative 1%.

9% is a great return but it still isn't as good as paying off your debt entirely. Having a savings account and out standing debt is rarely useful unless you are leveraging this debt for greater returns (ie Mortgage)

Pay it.


This is tricky. Me personally, I don't like debt. However, if I found an opportunity to invest the 16,000 in something that would pay for the student loans, I would invest it (BIG FUCKING NOTE: make sure the investment is safe). If I couldn't then I would pay it off and build up my savings with with the money I am getting in my paycheck and then some, from not having to pay off the loan.

And, again. No matter what, remember invest safely. It easier to make a dollar, than to make back a dollar.

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. - Warren Buffet.


I'd find a safe place to invest it with a guaranteed percent income on it. Use the percent income on it to pay off the loan. Yes gettin out of debt is of paramount importance but student loans are a different type of debt due to the low interst rate on them (at least in US the interest rate is very low). I would also pay more than the minimum if I could afford it. I'd up my monthly payments to pay it off in a certain amount of time. Also be sure to always keep AT LEAST three months of total living expenses liquid.


Unless you can invest the money in something that will have a guaranteed rate of return more than the interest on your loans (don't forget any taxes on the investment income) and you have emergency funds available, I'd say pay off a good portion of the debt and move the rest into an emergency fund. Like say 10k to debt and 6k into something that pays some interest with little/no taxes. Then setup some sort of automatic contribution to an investment so you're paying the debt down, but also starting to build something up.


If you don't have to make mandatory payments on the loan in the UK, the benefit of being free of the debt is pretty low. If you lose your job, interest might accrue, but you wouldn't have to make immediate payments.

As to investing it: What's the interest rate? Grad School debt in the U.S. can run about 8.5% currently. There is no way to get a low-risk return that high, so it makes since to pay off the loan. My brother for example though, has Med School debt at 2.5%. He wanted to pay it off, but I advised him that there is absolutely no reason to pay that debt off faster than necessary because he can definitely invest for a better return elsewhere, not to mention let inflation help over a few decades. The interest rate will be the biggest factor in deciding what to do.

And don't forget, you're going to have to pay taxes on the profits from any investment you make. Depending on UK tax laws, that could be pretty high. So interest - taxes > loan interest, and that doesn't even account for the risk of your investment.


So the money that is taken out of your paycheck goes to reducing the loan amount? or just paying interest?

I would pay whatever you can while remaining financially stable.

If it's just paying the interest, then those loans are costing you x amount of dollars each year. Unless you can invest the money in a way that you will make more money than it costs you, reduce it however much you can.

You're going to have to pay it back anyway, so if you can't use that money to make money, you might as well limit the amount they're taking out of your paycheck.

My .02


Since you obviously have the ability to accumulate money, pay off the debt.

That is a no brainer.

Then, continue to accumulate money just as you have previously and do what ever you want with it.


Ha. Blackhand beat me to it by a few seconds. Another thought on the taxes: Student Loan interest is tax deductible (in the U.S. at least) so the tax deduction will offset or even eliminate the taxes from the investment.


Not necessarily... That is a blanket statement that can lead people down the wrong path. You don't understand the rules enough to be giving advice.

Wow, there are a ton of people on here that don't have the first clue about rate floats.


^^^^^^^^^It's this simple. Well put.