Pay off Postgraduate Loan at 6.5% or Invest in VGLS100 for c.7% ?

[tinkeretti]

Hi everyone I have a Postgraduate Student Loan which currently attracts an interest rate of 6.5%. This could vary over the life of the loan.

Should I pay off the Postgraduate Student Loan aggressively or invest in my Vanguard LifeStrategy 100?

 

[jeffztus]

@tinkeretti I have a post grad loan of about 12k and savings of about £60k which are making me very little return at they moment. I'm not paying it back as I value having access to the capital in case I need it for a house deposit. These student loans are a great form of finance in terms of repayment obligations.

 

[nonamer21]

@tinkeretti It seems more than obvious to me that you should pay off your loan at a guaranteed 6.5% as opposed to risking your money in the stock market.

 

[tinkeretti]

@nonamer21 It can fluctuate was 6.3% previously
, it’s linked to inflation.

 

[nonamer21]

@tinkeretti Well then your question is about the level of future inflation and no one can tell you that for sure.

It seems to me that one of the choices opens you up to loss.

 

[tinkeretti]

@nonamer21 Both do if you consider opportunity cost and time value of money right?

 

[nonamer21]

@tinkeretti You’re quite right. When you’re sitting on an unrealised loss from making this unnecessary decision, you can just net if off against the opportunity profit that you’ve made.

Focus on limiting your downside.

 

[saved84]

@tinkeretti What are your earnings and current repayments?

How long until written off?

Do you expect current earnings to stay similar / increase / decrease / career break?

 

[tinkeretti]

@saved84 Will likely be paid off in 9-11, won’t be written off. I’d free up about £100 a month if I paid it off.

Earnings will stay broadly similar.

 

[roger5599]

@tinkeretti Not a like for like comparison. Student loans are much more forgiving in regards to repayment terms than any other loan you're ever going to get. It isn't a strict rate/return calculation. How much do you value having liquid cash available to you and is there a risk your financial situation could change where having more liquid funds from not overpaying would help

 

[tinkeretti]

@roger5599 Yes this is why I think I’m struggling to quantify. The interest rate also varies due to inflation

 

[roger5599]

@tinkeretti My point is don't try to quantify just using expected rates of return. Do you value the fact that in event of something changing in your life where your income falls that you could have cash in hand?