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Deadlines for 2011/12 student loans.
Read on to see why you might want to consider taking out a student loan, and what you need to consider:
"I wish I had taken the full student loan available to me. At the time I had plenty of savings, and did not need the full amount, but, as I have used up that money, I realised that it would have been better to get the student loan at low interest rate,rather than paying more for bank loans." Leeds medical student, 2007
Don’t take out a student loan if you don’t need the money to live off and you are likely to simply spend it.
You’ll probably end up having to repay the student loan and take out a more expensive bank loan further down the road.
Do consider a student loan if you don’t need the money to live off now but you may in the future and you have the will power to keep it invested in a high interest account in the meantime.
Some fourth and fifth year medical students have to take out bank loans to help with living costs. However, if you already have your student loan saved up you will not need to do this.
If you do not think you will ever need your loan throughout your degree you still may want to take it out. You may decide to buy a house when you graduate, and so can use your loan towards the deposit. Or you may want to buy a car.
Key Points
1. You have to repay your student loan and you have to repay it with interest.
2. However the interest is the annual rate of inflation(the RPI) or the highest base rate of a number of major banks plus 1% whichever is lower.
3. That’s the lowest interest rate you’ll probably find over the long term (apart from loans from family and friends).
4. You can invest your student loan in a high interest account.
5. From April 2011 you can invest up to £5,340 pa in a tax free Cash ISA each tax year.
6. That way you can probably make more in interest on your savings than you are likely to have to repay on your student loan. But savings rates are very low at the moment.
7. If you never need to use your student loan you will have made a profit on it by the time you come to repay it (assuming your saving is in a tax free ISA so not affected by your earnings once you qualify as a doctor).
8. If you find you need the money to live on in the later years of your course you have it available and, when the time comes to pay it back, you’ll be paying back less than if you had to take out a bank loan
You can apply for your loan and other student support up to 9 months from the start of the academic year or, if applying to SAAS in Scotland, up until the end of March 2012.
The small print
See our separate information on taxable income if you are investing in anything other than a cash ISA . For 2011/12 you’re allowed to earn £7,475 from work or savings before you have to start paying tax but may sometimes need to reclaim tax or to confirm you are a non tax payer (see related links).
See Martin Lewis’s guide to savings accounts on the related website link. He explains in detail how savings accounts work and compares the best deals.
Martin Lewis also has a savings calculator that will work out for you how much money your savings will make over a period of time.
Once you start working and become a tax payer you will probably not make much money from your loan by having it sitting in a savings account unless it is an ISA. However, by having it tucked away, you have an emergency fund and reduce the likelihood of having to take out a bank loan in the future. If you ever decide you do not need the money after all, you can pay it back – incurring no loss.
See the Student Loans related link for more information on student loans including what you can get, interest rates, how you pay the money back and the pros and cons of taking one out.
Health Warning
This is not free money, and you'll still see the impact of repayments in your pay cheques in the future.
If you know that having the money tucked away in a savings account will play on your mind until you break down and give in to a shopping spree then this isn’t the best option for you. | 
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