Investing student loan?

Is it a good idea to take out the maximum student loan available in order to invest any excess cash after spending in a low cost index fund such as Nasdaq, SP500, Dow, FTSE All share?

I’m probably going to spend most of it, but I’m wondering if I’d be better off to take on as much as possible.

The current interest rate on a plan 1 student loan is just 1.1% and does not fluctuate massively each year (Since 2009 has not exceeded 1.75%). Each of those index funds, even FTSE have produced way better returns than that without even accounting for dividends over a 20 year period. Would it be a good idea to take on extra student debt in order to invest to help repay the entire student loan in the future?

It seems like a fairly good idea to me as even in the unlikely event that the indexes don’t go up massively the loan isn’t technically a real loan as it’s wiped after 30 years. And it doesn’t need to start being repaid until I earn over £25k. Most don’t actually end up repaying the entire debt at all before it’s wiped.

Also is this ethical? As in, if I do take this on I wouldn’t want to be contributing to a wider problem if there is one?

Reply 1

ThuggerThugger

22

If you dont need one dont take one out.. its not for you to invest.

Reply 2

Napp

22

If it earns you more than the repayment interest rate, go for it.

Reply 3

IWMTom

20

Original post by 232CEC

Is it a good idea to take out the maximum student loan available in order to invest any excess cash after spending in a low cost index fund such as Nasdaq, SP500, Dow, FTSE All share?

I’m probably going to spend most of it, but I’m wondering if I’d be better off to take on as much as possible.

The current interest rate on a plan 1 student loan is just 1.1% and does not fluctuate massively each year (Since 2009 has not exceeded 1.75%). Each of those index funds, even FTSE have produced way better returns than that without even accounting for dividends over a 20 year period. Would it be a good idea to take on extra student debt in order to invest to help repay the entire student loan in the future?

It seems like a fairly good idea to me as even in the unlikely event that the indexes don’t go up massively the loan isn’t technically a real loan as it’s wiped after 30 years. And it doesn’t need to start being repaid until I earn over £25k. Most don’t actually end up repaying the entire debt at all before it’s wiped.

Also is this ethical? As in, if I do take this on I wouldn’t want to be contributing to a wider problem if there is one?

Plan 2 is a much higher interest rate.

Reply 4

IWMTom

20

Many experts (Martin Lewis especially) recommend taking the absolute maximum you're entitled to regardless of whether you need it or not. It makes financial sense.

The only time it doesn't necessarily make sense is if you know for certain you'll be in the top 5% of earners.