To pay off student loan?

[Yourauntfanny]

I need some extremely boring advice and can’t seem to find an answer from Google.

Im on plan 1 student loan in the U.K. and so I pay 9% on everything I earn over £22k a year. I am now into the higher rate tax bracket (just about) so I’m paying 29% on everything I earn under £50k and effectively 49% on everything above £50k. If interest rates had stayed low, I’d have paid my loan off last month but alas, the interest rate has gone from 0.9%-6% and I now have a further 18 months apparently until it’s paid off. I’m 33 and still career building so every pay rise and promotion is lessened and I’m just sick of seeing the thing on my payslip honestly!

The thing is I’m the sole earner in my household (DH is a SAHP) and I was hoping to get the £340 this loan costs me per month back - our mortgage is going from 2% to 5% this month and that amount would just about cover the increase.

I have an opportunity to clear the remaining balance with some savings, but if I do, will the full £340 return to my pay check or is the loan taken before tax? Meaning that £340 will be taxed and therefore will only return £170ish back to my pay packet? I’m trying to work out if it’s worth it or whether to just put the loan balance into the house to lower the LTV.

I read online the loan if calculated at gross but taken from net so does that mean the full £340 will return?

Following as wondering the same but not sure!

I just want to know if it’s worth it to cover the increase in mortgage or whether lowering how much we borrow when we remortgage is a better use of the capitol. If the full £340 a month comes back into my pay packet then it’s well worth paying off as it covers the increased mortgage but if it’s only £170 that comes back because it’s taxed at 40% then I need to bring the mortgage payment down by ploughing all the savings I have into the house including the rainy day fund and reducing the amount we borrow which makes me twitchy.

Use an online take home pay calculator like on money saving expert. Do it with the student loan option ticked, then again without and see the difference.

Genius!

Use this to check numbers - https://www.moneysavingexpert.com/tax-calculator/

I’ve just done exactly this and it all goes back into my pay packet My take home goes up by the student loan amount. Yippee!

It comes from net / take home pay

You should pay your most expensive debt first. So if your mortgage is 5% interest but your loan is 6%, you should be paying off your loan.

This was my thinking but given student loans aren’t like normal debt in the way they’re repaid I didn’t know if this rule actually still applied?

I'm fairly certain that when I finished paying mine I had to change payment type for my final year of it to direct debit as they could only change the one from your salary at the annual adding up they did. If you pay with that method it carries on until the end of the year and they refund you. (may be outdated information though!!) So make sure you check that with the student loan company and confirm when their cutoff is to change payment type and what the options are.

The amount that is deducted each month for your student loan payment is exactly how much extra you will see in you pay once it's paid off. So you'll be £340 p/m better off once it's cleared.

If you're within 24 months of paying it off you should see an option to switch to direct debit when you log onto the repayment portal. It takes about 2 months for them to notify your employer to stop taking the payments via PAYE but it stops you overpaying. You can also make extra payments on the website with a debit card.

It depends.

For you, you're paying more interest on it so financially it makes sense to get rid of it. But if you stop earning they stop taking it, so depending on your situation keeping the money in savings as money you can use can make more sense (kind of just seeing the loan as a student tax)

For someone selling you a mortgage it doesn't count in the same way. If you stop earning you stop paying student loan, and no one will try to take your house to pay it back if you don't pay it, so it has no bearing on whether they will loan you the money to buy a property, if you can't pay your mortgage they will take the property back, that the property will cover what you owe them is all they really care about.

It wouldn't apply for most of us but for you, who actually have a chance to repay the debt within your life time, it does.
I have type 2 and postgraduate loans and I won't even scratch the surface of it by the time it's wiped. I am basically not even covering interest rate. You earn enough to pay it off so you need to consider it the same way you would consider any other debt.

On hold to the student loans company... it's been 41 minutes so far - would anyone like to take bets on how long it's going to take to speak to someone for a redemption figure??

68 minutes on hold in total!

@Yourauntfanny Have you checked the website? If you're PAYE the balance is updated monthly.

Yeah it’s not accurate though, you have to call them for a final redemption figure annoyingly!

I had the exact same situation in the summer. If you can clear the student loan then do. Otherwise it’s just another 18months of interest.

I had to phone for a redemption statement but once you get through to them, and they issue the figure it’s simple as you can then manage the final payment(s) online.

Isn't 6% on a £20k debt better/lower priority than 5% on £200k?

Not sure what you mean.
Let's say she currently has 200k at 5% and 20k at 6%. Annual interest on both is 10k + 1,2k = 11.2k
She choses to reduce her larger debt, it is now 180k at 5% + 20k at 6%. Annual interest 9k + 1.2k = 10,2k
If she pays off her 20k debt, annual interest is 10k