If we didn’t have the added complexity of currency exchange rates going into this equation and you were just working in the U.S. and deciding between paying off your 6.55% student loans vs opening an after-tax investing account, I would say you should pay off those loans. 6.55% is high enough that it’d be hard to get better than that after-tax in stocks.
So now let’s assess the currency situation. Currently 1 GBP = 1.27 USD. This is nearly the low point over the last 5 years (lowest was 1 GBP = 1.22 USD, highest was 1 GBP = 1.72 USD)
While the GBP to USD exchange rate is at a near 5 year low, I don’t think it’s going to go up anytime soon. My reasoning for this is that it hit that low when Brexit passed, and while it seemed to recover a bit early on, briefly peaking at 1 GBP = 1.42 USD, it has consistently been on the downward trajectory again since the beginning of April 2017 around when the 2 year exit process was officially started. Now the exchange rate is again back down near the 5 year low, most likely because the latest plan to deal with Brexit isn’t looking good. It doesn’t look like this is going to be favorably resolved soon, and I could see it dropping a lot more when whatever final Brexit terms become a reality.
So based on that, I would put any extra money towards paying down those student loans, because I think the exchange rate is going to be getting worse for a while.
But I think technically all of this currency analysis is getting at trying to time the market, and since we aren’t Warren Buffet, we are on average much better off just going in with what we have as soon as we have it. So not holding onto those GBP because you think they’ll be worth more USD in a few months. So even if we thought the exchange rate was going to get better for you in a few months, you should still pay off your student loan now. And when the source of that guaranteed 6.55% return is all gone, then open the local UK after-tax account and buy the index funds.
It’s nice when my naughty market timing assessments result in the same course of action that you’d take if you weren’t trying to time the market. Score!
Hope this helps you make your decision. Good luck!