Martin, I know the old type of student loan (for those who entered uni before September 2012) is not worth paying off in one go, but does this apply to the new loans with the £9000 fees, as the interest on these is much higher?
A: On the surface the above-inflation interest certainly makes post-2012 loans more appealing to clear – as unlike current graduates’ student loans you can’t earn more by putting the cash in a high-interest cash ISA.
Yet the big difference is that, because there’s higher interest and people are borrowing more but repaying less each month (you repay 9% of everything above £21,000 under the new system, under the old it was 9% of everything above £15,795 – so new students are actually left with more disposable income), a lot more people are unlikely to repay their loan in full in the 30 years until the debt is wiped.
If that happens, then you may find paying the cash off has no impact on the overall cost, so it’s wasted money. The higher an earner you are, the more likely it is to be worthwhile paying it off. The lower an earner, the less worthwhile. See my full step-by-step on this and use the calculator at www.studentfinancecalc.com to see how much you’re likely to spend.
Q: With quick cash loans becoming really easy to come by (wonga.com etc), what are your thoughts on these quick-fix solutions, for students especially?
A: Don’t touch any payday lenders with a bargepole. While astronomical interest rates, say 5,000% APR, look bad, actually over a short term they’re not that expensive. However some firms deliberately draw you in and try to get you to roll over, then the costs massively rack up – often many times what you borrow.
Compared to a Student Loans Company loan, which you only repay if you earn enough, and with payments proportionate to income, why would you go near this? Even credit cards are cheaper (though still I wouldn’t).
If you’re struggling financially in the short term, try talking to your welfare advisor at the university who may help you access some funds.
Q: If you could go back in time and give your first-year-of-university self ONE finance tip, what would it be?
A: While I know I don’t look it (ahem) I was fortunate to go to uni in a time where student loans had only just started and I got a small loan and a bigger grant.
To be fair I was a bit of a money nerd back then too, so it wasn’t so bad. Yet I wish I’d got a job earlier on in my student life. Not only does it provide valuable extra income but it really helps show real-world experience on the CV afterwards.
Q: Martin, did you watch 'Secrets of Poundland' on Dispatches, Channel 4 this week? What were your thoughts? Are shops like Poundland really a money-saving option for students, or are we all being conned by clever marketing?
A: Neither. Slightly tautologously, Poundland is a great shop for things where Poundland is cheaper, it’s a bad shop for things where Poundland is more expensive than elsewhere.
The point is it averages the price out, so you need to know what’s good value and what isn’t. There are some fantastic bargains in Poundland – but like any shop not everything (do we berate Asda when it charges more for goods than Tesco?)
That’s the point of being a consumer in a marketplace. The only way to thrive is to know what you should be paying before buying. So it’s neither a con nor an ‘always buy there’, just somewhere in the middle.
Q: In order to pay for some internships, I've run up a bit of credit card debt. I have savings which would pay off 80% of it immediately, or I could let it hang over for a while and pay off over the next year of studies. Should I pay it off now and lose my savings, or is it fine to leave it for several months and keep some money behind? Does it matter?
A: Unless your credit cards are at 0% this is a no brainer. A typical credit card charges 18% interest, so that’s £180 per £1,000 owed. The best savings account, even as a non-taxpayer, is paying 3%, so that’s earning £30 per £1,000.
So pay the card off with the savings and you’re £150 per £1,000 better off. If you’re worried that you won’t then have any savings, truth is you don’t now, you’ve still got debts they’re just costing you more as they’re in two separate accounts.
If you’re thinking ‘but what if I need cash for an emergency’ (eg your roof falls in, not a funky haircut) then I’m not saying cut up the credit card. If you had to, you could borrow back on that and be no worse off than you would be using savings now and reducing interest in the meantime. See my full guide on this.