I have taken out a UK student loan several years back whilst studying, it was interest free at the time, but now a low interest of 1.5% APR has kicked in.

I have scraped together enough to pay this loan off, seeing as they sent me a statement a few days ago stating that the first 12 month period has just ended and the 1.5% rate has just been applied. I now have 12 months before I'm hit with another 1.5% on this loan.

However I have just started a cash ISA account with my partner, which pays 1.8%.

The way I see it, the 1.8% tax free earning is greater than the 1.5% I will accumulate in interest fees on the load.

Is this a good idea. Should I invest the money and earn 1.8% profit? Or should I pay off the loan and avoid hitting another 1.5% charge?

2 Answers 2


You almost never want to repay a pre-2012 student loan early. As you've realised, you can put the money in an ISA instead and earn more interest than you're paying on the loan. If you withdrew money from the ISA each month to replace the repayments being taken from your salary, there'd be money left in the ISA when you finished repaying the loan.

This is also the cheapest debt you'll ever have, so if you repay it now and then end up borrowing money elsewhere in the future, you'll probably be worse off. In particular, if you expect to have a mortgage at some point, you'll probably be better off keeping the money to add to a deposit rather than repaying it now and then borrowing more on the mortgage.

You should also consider how long it'll take you to repay the loan normally. If you don't expect to finish repaying within 25 years, you'd be throwing money away by repaying early. This is more of an issue for the larger post-2012 loans.


1.8% interest isn't bad, but unless you're a higher rate taxpayer a Santander 123 account might be better for you than an ISA. See http://www.theguardian.com/money/2015/mar/23/cash-isas-pointless-savings-revolution

  • The new 'help to buy' cash ISA's are out soon, so as I am looking to buy a house, I will be investing in that to its maximum extent. Its not a lot, but effectively over 4 years its a 25%, and combined with my partner thats £6000 return on a £24k investment.
    – Husman
    Commented Apr 29, 2015 at 11:32

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