Should I pay down my student debt early?
I just graduated university and started my first job. I have £50,000 in student loan debt at 6.1% interest.
My monthly payment on this debt is £10 (direct from my paycheck). I can afford to pay £200 a month, but should I?
I've heard that student loan debt is not considered a derogatory factor when being evaluated by a mortgage lender. Is that true?
What if any problems will I encounter by continuing with the current payment situation?
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I heard this debt doesn't count towards a mortgage.
Maybe or maybe not, but it sure does count towards towards your bank account, and your bank account is where your mortgage payment comes from...
EDIT: what I mean is that you need to consider it when determining how much that you can afford.
The required payments depend on your income and if you manage to go a certain number of years (iirc it's about 30 though the exact rules keep changing) of making the required payments without paying the loan off then the loan will be forgiven. IIRC the loan will also be forgiven if you die.
As a result of this it is in general it is a bad idea to pay off UK student loans any faster than the government forces you to. If you end up unemployed or severely underemployed then you will only be required to make no or minimal payments on your student loan while a regular loan would be chasing you for payments.
A large deposit makes it easier to get a good mortgage deal. Furthermore the government has big incentive schemes for those saving up for their first mortgage deposit through the "help to buy ISA" or "lifetime ISA".
Overall I belive you will be far better served by saving up more money for the mortgage deposit than by paying off the student loan faster than required.
I would only consider paying off a UK student loan faster than required if all of the following are true.
You have a stable long-term job or other stable long term source of income.
You predict based on that job and it's expected career progression that you will be forced to actually pay off the loan before it is forgiven.
You already have either bought a house or have saved up enough for a 25% deposit.
I've heard that student loan debt is not considered a derogatory
factor when being evaluated by a mortgage lender. Is that true?
I'll focus on this part of the question since there are plenty of answers for the rest. I'm going to assume that by "student loan" you mean the official government-sanctioned one administered by The Student Loan Company and not just a personal loan from a bank aimed at students.
Student loans do not appear on your credit history. There are numerous sources claiming this, but I can also confirm it personally as I have a student loan and am in the habit of obtaining my credit report from all three main agencies (Equifax, Experian, Callcredit) on a regular basis: both the statutory reports and the online ones. In 16 years it's never appeared on any report.
However, that doesn't necessarily mean that it is irrelevant for a mortgage application. The majority of applications will ask you to provide a list of your assets/liabilities and your income/outgoings. If you fail to mention your student loan then it is entirely possible your lender will never find out, but it could be considered fraudulent (which if discovered, will negatively impact your application as well as future applications, as lenders also report to fraud agencies as well as credit agencies). One possible route to discovery would be if the lender asks to see your tax returns (not uncommon these days).
Primarily this information will be used to determine affordability. Not all lenders treat all outgoings the same, and the regulations are constantly changing. So it's best to discuss this with an experienced mortgage broker. From what I've read, affordability is the only issue and lenders won't consider it a "black mark" that you have a student loan. Note that at £10 per month, this is so small that you might as well consider it irrelevant from an affordability perspective.
In my own highly specific situation (UK, graduated in 2009) it made sense to repay early. I had saved up a large deposit towards buying a house, and built up an excellent credit score, but I still had about 1-2 years worth of repayments due at the point when I wanted to get a mortgage, and from speaking to various lenders and brokers it was clear that despite its relatively small size, this outstanding debt was deterring some of them from offering a particularly low interest rate. In this context, it made sense to sacrifice a small portion of my deposit.
For most people the answer is a strong No, you should not pay more than the minimum repayments.
UK student loans are a special type of debt with two big differences to a normal loan:
You are not required to make repayments while your earnings are low.
Many students will never repay their loan in full, instead the government will write off the remainder of their loans (typically 30 years after graduation).
Any overpayments you make will reduce your balance, but if the balance of the your loan is going to be written off anyway, then it doesn't matter to you what that balance is.
If you expect your career earnings to be high enough that you will repay the loan in full before it is written off then may be in your interest to make early repayments, but even then you will want to consider whether you have better uses for your money, e.g. paying off other debt or putting a deposit on a property.
Money Saving Expert has good resources for UK student loans: www.moneysavingexpert.com/students/student-loans-repay http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes
In the UK, supposing that this student debt is the government backed type debt and not private debt, then it will never be reported on your credit report and will not affect your chances of getting credit.
The student loan system in the UK is massively misunderstood by the general population and this lack of understanding is used for political aims by the media and political parties. Realistically the loans work like a graduate tax that stops when you have paid a certain amount. The interest rate is very low and capped by a function of the CPI measure of inflation and it is considered by credit analysts (I used to be one) as "good debt" meaning that it has at worst a positive effect on credit rating (it is actually normative in most cases). Paying it off early has some benefits in that it gives you more disposable income after paying off but this extra disposable income comes at a time when you have more disposable income anyway as you are earning more.
In terms of getting a mortgage the small monthly deduction from net income will have much less of an effect than your credit rating which, as mentioned above, this debt does not feature in.
Source: I'm in a similar position (just a few years older) and it doesn't show on any of my credit reports and never has.
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