Student Loan Repayment Scenario - What Would You Do???

My loans are currently deferred because I am not employed, but I have been considering what to do about them once I am employed.

I have recently been put in a position to pay off part of them thanks to an inheritance, but I have no "grown up" experience about which would be the better option financially, and I have very few friends that are able to help, so I'm going to ask all of you. 

I have 2 small loans from undergrad that are about $150/month total. Then I have the grad school loans which is $384/month total.

Now, what I am considering is that I can pay off the 2 smaller loans and leave a good chunk of inheritance left for the future (down payment on a house, ideally), but I would be left paying more per month out of my future salary, whatever that is.

Or, I can pay off the grad school loans and not really have much left for savings at all, but I would be paying considerably less per month and could therefore save more of my salary.

The question is, which is the more sound plan? Or is there something else I should consider? I am leaning toward just paying off the small ones, because who knows how long it would take me to ever save that amount of money again if I were to put it all toward the grad school loans. Years, certainly. Plus, I am fairly certain I will be able to lower the monthly payments on the grad school ones if I do income-based repayments, because I'm not likely to make much (we're talking AT MOST £20,000 but £15-17,000 is more realistic).

I should add that I have no credit cards or car loans, so this is really my only debt. Also, any book recommendations to help me figure out how to be really awesome with my money once I actually manage to have an income??

Thanks in advance! 

I heard someone ask this same question on an NPR financial show (Financial Marketplace?) a few weeks ago. The girl had the same scenario, should she use her all savings to pay off all her loans? Their answer, which surprised me, was no. She should not leave herself in a position of no savings to use in case of an emergency. Also, often you can write the interest on student loans off in your taxes. And not all debt is bad debt, particularly student loans. Personally, if it were me I would pay off the two smaller loans and continue to make the one payment. If the interest is really high on it, you could always look into refinancing it for a lower rate.

Oh, and I'm totally jealous of you. 

Aye, do not use your savings to pay off this debt. My mother always told me (and she was right) to always pay off you higher interest debt first, like CC or traditional loans. Since you have none of those, just pay off like normal when the time comes. It is *good* to have some sort of revolving debt on your credit report.

Martin from moneysavingexpert.com has a few things to say about this exact topic.

I agree - pay off the little loans if you want, but leave the grad student loans. As you say, the payments can be reduced for income level, the interest is tax-deductible, and you can always use your savings later to help make payments or make a big dent in them. Personally, I had enough money to pay off my student loans pretty much since I got them (thankfully they were super low, only $2,500). I waited until I had about $250 left as a balance before I knocked them out, though - the interest was really low and it meant that I had a 3-year good loan payment item on my credit report.

I've read/enjoyed/seen great reviews for The Total Money Makeover, by Dave Ramsey. A bit preachy/Christian-y at times (especially for a book about money), and his advice for investments is pretty stupid (he assumes a guaranteed 8% return/year, which is pretty unlikely for a 40-year period like retirement), but the debt/savings stuff is sound.

For general money management, though, I really liked All Your Worth: The Ultimate Lifetime Money Plan, by Elizabeth Warren. They talk about how to budget money really simply (3 buckets!) but sensibly.

This is great. I will just pay off the small guys then. Thanks guys!  And I'll be sure to check out that Elizabeth Warden book EN!

Oh, and I'm totally jealous of you. 

  I thank my Pop-Pop every day! With a year of unemployment under my belt and my loans coming out of deferrment again in a few months, well, without this and the existence of the NHS, I would definitely be flipping out more than I am! 

I have a fairly large student debt to repay back in the US, and am working here in the UK. I've been paying the loan for 2 years so far (18 more to go) and have paid a considerable amount of interest.  I have the form to deduct the interest from my taxes, but as I don't pay any taxes in the US because I work here in the UK, I just assume I can't get any of this money back.  However some of you on this forum have suggested otherwise.  Am I missing something? Is there any way to get tax deductions on US student loan interest payments if working in the UK?

Just because you are in the UK, you still have to file taxes (and report income if over a certain amount) for the US. When you fill out your tax form there is a box for interest paid on student loans. However, you can only claim this tax back for a certain period of time and I've had mine so long I'm no longer eligible to do so.