I'm a current student at a university in the UK partway through my course. I've accumulated £21k of debt so far. The loan interest rate increases with inflation, and will be at over 6% next year (worse than any bank loan although I admit the repayment terms are more favourable).
I'm considering doing (some) early repayment during a year in industry next year. I've seen a lot of advice discouraging this, but my thoughts are:
- The interest will likely to continue to increase with inflation. The total balance is increasing now whilst I'm studying, and since it's compound intereast it's better to pay now than later when I'm forced to.
- Paying off the student loan is better than placing money in an ISA where the interest rate is, say 0.25%. By paying money off from the loan I'm 'saving' myself from being taxed on that amount at a rate of over 6%
I'm also considering foregoing taking the tuition fee and maintenance loans for the final year of the course which should further reduce the balance I have to pay off. Instead, I'd pay these up front.
It is likely I will pay off the entire loan balance (even paying the mandatory amount with no voluntary payments) once I graduate - so ignoring the loan doesn't seem like a good idea, even with the policies on automatic forgiveness after 30 years. It will just accumulate more interest which I will have to pay via taxes - money I could eventually put towards mortgage repayments.
I'm aware that this debt is not like credit card debt. It's not particularly nice psychologically to see the total balance though!
Are any of my conclusions incorrect - does this approach make sense?