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Retire on your student loan

Steven Aitchison
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Gaining from your student loan

By steven Aitchison

Getting a student loan is a necessity for most students. However some students, particularly mature students don't need and don't take out a student loan. If you are one of those fortunate enough not to need a student loan when attending college or university my advice would be to take it out anyway and make it work for you.

 

more_moneyIf you take out a loan of £3000 per year you obviously do not have to pay it back until a) you have a job and b) you are earning enough to pay it back. The beauty of the student loan is that the APR is very small.

Now if you were to take that £3000 per year for 4 years you would have accumulated £12,000 of a loan. Now you don't have to worry about paying this back until you start earning over £15,000 per year and then it is 9% or anything earned over £15,000. E.g. if you start earning £20,000 a year you would pay 9% of £5000, which is £37.50 per month.

The interest rate on a student loan is linked to the rate of inflation which is currently standing at 3.2%.

So what do you do with the £12,000?

Yep you've probably guessed what I am going to say. Stick in a tax free self managed ISA. Which means you'll be putting in £3000 per year of your allowed £7000 per year. Now if all you were to do was to leave that £12,000 in an ISA and you were buying various funds at an average return of 10% per and you leave it for 30 years. You would get back £182,526. This is staggering and is the miracle of compound interest which is what I bang on about all day every day to anybody that wants to listen, which is not a lot.

If you save about £250 per month after you start working for 26 years you will amass a staggering £542,825 to retire on and it will all be tax free.

I'm sorry that my first few posts are about compound interest but I love the subject, I love the figures and I love to write about it.

Make your student loan work to pay you, don't work to pay your student loan.

Check out this calculator to see how much you could compound
Financial Calculator

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About the author

Steven Aitchison

Steven Aitchison

Steven Aitchison is the author of The Belief Principle and an online trainer teaching personal development and online business.  He is also the creator of this blog which has been running since August 2006.