If you think you are going to have some "spare" money from your stipend during your PhD, is it worth using it to pay off some of your student debt, or is that pointless?

I think this is a personal choice and will depend on 1) the interest you pay on your student loan (this will depend on when you got it) and how you prefer to manage your money. For example, some people don't like having debts of any kind so they'll be more inclined to pay it off.

Others 'don't mind' having debts so, in that case, it might be worth having a look at interest rates. The interest rates of student loans are generally very low (although this will depend on what year you got it) so, for some, it's best to place any 'extra' money on an ISA (if interest rates are higher than that of the student loan). This way, they'll still have their money to pay their student loan if they choose to do so but they'll be earning some interest ;-)

Obviously this wouldn't work if your student loan's interest is higher than that of an ISA, in that case I'd pay it off.

By the way, when you mentioned 'student debt' I assumed you meant student loan but the same principle could apply to any debts and this is just an idea, albeit a very good one if you ask me, but I'm VERY biased (up)

Hey Ender! If it's a student load with very little interest then to be honest I would save your money in case you don't get a job straight after your PhD and need some savings to rely on (unless you already have savings you could use for this purpose!). It takes most people a while to get a job after the PhD so some savings would definitely prove useful! Best, KB

As far as I'm concerned the student loans company can wait before they get my money. I'm paying off a career development loan that I took out for my MSc because it has to be paid off now but I'm ignoring my undergrad loans because they don't have to be paid until I'm earning more money. If you have a bit of spare money then save it because it could be very useful if you're still working on the PhD when funding runs out.

I put aside any spare money that I could to live on once my finding finished. I have two weeks til submission and then I do NEED to get a job, but I have managed to live ok during the writing up period.

ANd if you finish in three years, the money could always go on a holiday. My plan was 1/2 weeks in the carribean ...... didn't quite work out that way!!

Hi Ender, I did pay some of my debts with the money I saved from the stipend. Part of it is useful now that my funding has run out (luckily I have got a paid extension of 6 months but I don't know when I will receive my next salary as it involves paper work). I can survive at least couple of months without major problems.

I think most of the PhDs are funded for 3 years and most of the students take more than 3 years (like me).

I have some money in reserve for a holiday after the viva :p as Catalinbond mentioned a holiday after a PhD is absolutely necessary :-)

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The general rule of paying off debt is that you ALWAYS pay off the debt which has the highest interest first.

Now, student loans do have interest, but they're set in such a way that, each year, the interest rate is less than or equal to the rate of inflation. This means that the total cost of borrowing if 0 (or less than 0!). i.e. you may take out a loan for £10,000, and in 10 years time you need to pay back £13,000, but this extra money is due to inflation... i.e. when you originally took out the loan, £10,000 might have bought you 1,000 trips to the supermarket, and 10 years ahead, to buy the same 1,000 trips to the supermarket, you'd need £13,000. So if you have ANY other debt at all (private loans, career development loans, car finance, mortgage, credit cards, overdrafts, etc), chances are that the interest on this debt is a lot higher than the interest on the student loan.

But even if you have no other debt at all, I'd still advise against paying off the student loan before you have to, the reason being that you can be more wise with your spare cash in other ways which make you better off in aggregate. For example, the interest on your student loan is often a lot less than the interest you get in a decent savings account. So if you have a spare £100 say, you would, in aggregrate, have a lot more money in the future if you put this money in a savings account than if you used it to pay off your student loan.

You can verify this by a simple calculation, taking into consideration that the current student loan interest rate is 1.1%, whilst you can easily find savings accounts with interest rates of 2.8% and upwards. The get more from the savings account interest per year than you save yourself by paying off the student loan.

On that basis, I'd say, do NOT pay off your student loan until you have to, and even when you have to, only pay the minimum and don't make extra payments until you're near the end of your repayments and just want to get it over and done with (this leaves you with more money to invest in things which give you a more money than you would save by paying off your student loan with it).

Even if your loan is so big that the minimum payment will mean you're paying it off for the whole 30 years, you still win! After 30 years, the loan gets scrapped, and if you've only paid off half (with interest included) that means you got 1,000 supermarket trips for the price of 500. And if your loan is that big, then any payments you make towards it from your stipend will probably be negligible anyway!

Hope this helps.

Of course, I'm assuming you're in the UK where this is all true. I'm not sure how student loans work elsewhere.

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The US system may be different- to a UK student I would strongly advise NEVER make a voluntary payment to your loan. In a few decades it will be forgiven anyway and it is unlikely that most of us will ever need to repay our debt in full.

After your PhD unless you have well off partner or parents you will run in to problems money wise. You will almost certainly need to move for your postdoc and moving is expensive, especially if you decide to reap the CV-boosting benefits of working internationally. Unless you are very lucky the start of your postdoc will not fit in nicely with the end of you getting paid stipend either. I also have some spare money from teaching that I am sitting on and am just starting to look at where I want to work next year and how much it will cost... and I still expect I'll need an overdraft! My advice- keep a nest egg. (robin)

Thanks everybody for your replies! Again your advice has saved me from making the wrong choice. (and yep i'm in the UK).

You are right Skig, these student debts are from the student loan company, the majority of it i think is made up from the maintenance loans, but also tuition fees.

Hey Cindrella, my Phd is also funded for 3 years, although they officially have allocated 3.5 yrs funding for it, but if it looks like i need the extra half a year nearing the end of the third then i have to ask for them to release the extra money.

Hi KB, unfortunately i don't have any other money saved up, i did have quite a bit of money saved up from my undergrad, but all of that was eaten up since i was out of work this past year, and didn't sign on to job seekers for a number of motivational reasons.
My parents have no money at all. I do feel happy with my situation though, i started with nothing and now i have minus nothing (at least i don't have to pay it back yet- and i will follow your advice, not pay back more than i have to, and only when i have to), but i am doing what i want to do so that's good. I am still naively excited about starting it!

The holiday idea is great!!! I have always wanted to go to a hot country, i have never been able to go yet. I tried to organise to go away before starting my PhD but it didn't work out- i really wanted a tan to try to offset being stuck in a lab for years lol, but oh well. I have only ever been abroad to America, and not a hot part either, so finding my way onto a hot sandy beach with clear blue waters remains a dream of mine! I think i will save up for that, definitely. Maybe that can be my happy thought for when the PhD gets really hard?

I also agree that i will need to keep money for relocation and waiting for a postdoc position. I do want to go to a different country for my first postdoc (my professor has suggested California or Japan...), and return to the UK for my second, with the hope that i can find my way back to relatively familiar surroundings for an eventual permanent position (in whatever is available at the time, academia, industry, i will probably be getting desperate to settle down by then, so i will just go with the flow).

Thanks again
Ender

I'm assuming you're talking just about the Student Loan Company here. Providing the interest rate on the student loan isn't creeping up to something scary I'd say no.

I'm very debt averse, and worked for a year before uni to save up, and during the summer holidays to try to minimise the amount of debt I was accruing. But I haven't made any voluntary repayments of my government student loan. I have thought about it but it doesn't seem worth it to me. Any spare cash from my stipend goes into savings for treats/a rainy day/in case I over-run with the PhD. That way I'm not frittering it but it's still accessible to me. Once I have a proper job with a salary I'll think about making some payments to speed up the process but right now I feel disinclined to repay a debt that isn't hurting me.

If you really don't need the money at all right now, I'd suggest finding a savings account that will give you a higher rate of interest than the loan is accruing and put it in that (e.g. a 1/2 year fixed term deposit).

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Hadn't read GSM's post before, but what s/he says is a very good explanation. You have to assess the magnitude of your own debt and future earnings but even a fairly uncomplicated savings strategy will be beneficial over early repayment. In my case I won't 'win' the debt write off at retirement game because my loans come from the days when fees were a lot lower, so unless I have a crappy job for the rest of my life, I *will* have to repay it all. But so long as you keep an eye on where the loan interest rates are going and the potential interest you can get on savings then it's best to wait.

I did remind me, however, of the fact that the debt is continuing to increase with inflation but rather charmingly the UK research councils have frozen stipends so the 2011-12 rate is exactly the same as the 2010-11. But hey, it's not like we have to eat or anything.

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Haha, tell me about it! This is my first year, so in the lead up I reviewed the past minimum payments and they all went up by £300 each year without fail, so I figured it was a safe bet that I'd be getting £13,890 this year! But no, stuck at £13,590!

Hopefully they go up by more than £300 next year to make up for it... otherwise I'll be losing out all 3 years!

It's really annoyed me. I don't actually *need* the increment - fortunately I can survive without. But the fact that it wasn't actually announced (I had to look for the info) and the fact that research council stipends aren't terribly generous (compare to charity or industry funded) does little to convince me that my skills and knowledge are valued by society. Yes, yes, I know we're still 'in training' but in my view there are many ways in which the apprenticeship analogy falls down. Given that there are already too many PhDs for the number of postdoc jobs, I think there are alternative ways they could have made a cost saving without disadvantaging existing PhD students.

But I'm in danger of going off on multiple tangents here so I'll stop!

I think the stipends are staying the same for the foreseeable future, I'm just about to start my research council funded PhD and my letter clearly says that I'll be getting £13,590 for all three years.  But I guess pretty much all people working are having the same so it's not just PhD students that will be starving!

Oh and I was planning on keeping any extra money in a savings account as a nest egg in case of running over the three years or have to wait a while to find a job which looks likely! 

I completely agree with what you're saying. I haven't even started yet and I'm already quite frustrated with how under-valued PhD students are in society, and have become quite deflated when I think about how long it's going to be before there's any sort of respect, financial reward, status reward and security reward for the many long years of solid work I've put in.

The stipend isn't terrible... it compares favourably with the average graduate salaries once you include income tax, national insurance contributions, council tax, and other things we don't need to concern ourselves with that people who go into graduate jobs do, and I suppose there are opportunities to make a bit of extra cash through teaching/tutoring/lab demonstrations/invigilation, etc, but still, it's not a huge deal.

The country's attitude to research and those who conduct it and train in it is appalling.