The government has just announced some changes to the student loans system. From 2008 it will be giving more people grants to help cover living expenses while they study (see the Student MoneySaving guide or Parents Guide to Student Funding for more on how it currently works). Yet there’s another very interesting change, it’s also said it’ll allow people to take up to five years of payment holidays from repaying student loans.
This is due to come in for students starting in 2008 once they have completed their degrees.
So should you take a payment holiday?
In a word… yes. As I write in much more detail in my Should I Pay Off My Student Loans? article, student loans are the cheapest form of long term debt possible, and in fact you can actually make more money by dunking any excess cash you have in a Top Savings Account rather than paying off the loan (as you earn more interest on the savings than the loan is costing you).
This means it’s a bit of a no-brainer; as most people shouldn’t pay off the student loan any quicker than they need to, when the rules change and you can take a payment holiday… do! This way if you have other debts, including a mortgage, you can thrust any spare cash at paying those off more quickly as they’re more expensive and therefore accrue interest at much greater speed.