Should I pay off my student loan in full?

[Coolbreezee]

Currently on maternity leave.
I have £21k left on my student loan. £40k in the bank.
I plan to return to work in 12 months time.
My salary will be in the ballpark of £35k rising to £50k in the next couple of years.
Interest on my loan is approx 7%.

If I pay off my student loan I will be completely debt free. I will need to use some of my savings to get through maternity leave but will be in a good position to save when I get back to work.

Im just not sure what the best option as there are too many unknowns. I feel like with my salary I will be one of those people who ends up paying the loan off plus a LOT of interest. Any advice would be greatly appreciated.

Yes

Respectfully to your dad, this is not good financial advice.

It depends on the interest rates you're paying on your debt vs the interest you could get if you saved or invested the money.

If you can earn more in interest than you're paying by saving/investing, it's better to do that.

It also depends if your quality of life is being impacted by loan repayments, while you have a chunk of money sitting in the bank.

You need to look at the numbers for your own financial situation and ideally talk to a financial adviser, but to give an idea you can get up to 5.17% on an instant access ISA at the moment (with Trading212) and you'll likely get more if you're willing to invest.

I have a stocks & shares ISA with Vanguard which has returned 25% over the last couple of years. DD's, also with Vanguard, has returned 24% in the last 18 months. We both have the Lifestrategy 100 equity fund, which is high risk, but we plan to invest over a long time and ride out any market dips.

I think I would ultimately pay off all the debt plus interest as it's only 20k not 80k. Also I will need to work full time once I finish maternity as i need to support my DD, so I can be confident I will be paying it back from my salary.

@Anotherparkingthread I'm fast approaching 30. 😭

I know. It's still a lot.

My husband paid his off as it was never going to get written off due to earnings. Was better to pay it now than pay in 10 years with more interest!

Nahhh i wouldn't. It's not a normal loan in that it doesn't impact your credit rating and you don't have to pay it if you're not earning etc.

I would only say to pay off a student loan if you're on track to pay it off with your earnings long before the write off date.

I've got an £8k loan, 15 years left to roll on it, earn < the threshold but have £50k in savings. No chance I'm paying it!

And yes sorry, student loan is not the same as a normal mortgage or loan because it gets written off and your repayments depend on your earnings.

I personally wouldn't pay it off, I would see it as an education tax where you pay more as you earn more, but it should always be affordable repayments.

Depending on your plans for your savings (like my term or short term) get them in a high interest savings account/stocks & shares ISA and start making money from them.

@upat4am thanks for this. Interest on my loan is more than I am getting in a high interest savings account. I can't do high risk at the moment because my financial position is not stable enough. The loan has in creased by nearly 2k already over the last year and a bit. Even if I dont pay the loan off before it is wiped, I will almost certainly pay more than 21k over my working life. I think it gets wiped when I'm 60. I still don't know whether I will rent or buy as it depends on the housing market and whether I can get a mortgage

The interest is quite high, and i’d just want to get rid of it personally. Martin Lewis’s advice does vary, on type of loan terms, your age, what kind of money will earn. If you need a house deposit though maybe keep it for that, but i’d hate paying it out each month and seeing the extra you’re owing each year with interest

Most people never pay off their student debt. It just gets written off when enough time has passed. For those people, paying off the debt in full doesn't make sense, as the alternative would ultimately have been for the government to pay it off for them. In the right circumstances, where you will earn enough to pay it off eventually, paying it off early could possibly make sense. But that depends on what else you would have done with the money. If you need it for a house deposit or to get through a period of financial difficulties, then you might regret giving it to the student loan people....

The likelihood of you paying it off in full before the 30 years are up in your situation is high. Was it an NHS degree you did? DDs the same, she’s 27 and only owes £6k now, but being a band 7 she pays quite a high amount each month. She will pay it back over the next few years anyway, but If she had the money now I would recommend she cleared it ASAP and stopped paying the outrageous interest.

My recommendation to DS who owes £60k would be completely different, in his case I would follow the Martin Lewis advice and see it as a graduate tax.

@Coolbreezee I can 100% recommend to watch the Martin Lewis show that was on this week. He also has loads of info online about paying it back.

From what I remember - he said MOST people won't ever pay back their student loan in full before it gets wiped; providing they was on certain plans (think it was plan 1 & 2) and the amount you are paying back should be around £90 a month (I think he said - not 100% on that)
And said NOT to overpay it; because it shouldn't be thought it as a "debt" - where he usually advocates for repaying loans quickly, student loans are the exception.

I think it makes sense to not pay the loan back if the loan is 50k +.

At 20k however I think I will end up paying above and beyond over my lifetime.

Also thanks for all the suggestions to check out Martin Lewis. Guess what I will be watching this weekend 😊

Don't pay it off, keep it for a house.

Would you consider moving @Coolbreezee?

Homes in Norfolk near the hospitals in Gorleston for the James Paget and commutable to Norfolk and Norwich in Norwich would be affordable for you, a couple of hours to get to London via road or train near lovely beaches in residential areas. Gorleston, Bradwell, Belton and more inland Beccles (can be a bit floody if in low ling areas), Blofield and Oulton Broad areas are all nice. I wouldn't want to live in Great Yarmouth down the road as is rougher and very touristy but it's good fun in the summer when the seafront is buzzing.

You're outgoings are low now, but what are your plans for childcare when you're back at work? You might need some money to get you through the expensive nursery years.

@Singleandproud I may have no choice but to consider moving in the future. At the moment whilst I am living with my dad I want to make the most of London salaries. Most jobs in my field are London based however there may be some remote options down the line. I have a lot of big life decisions to make that's for sure. DD has flipped my world upside down (in the best possible way!)

I have absolutely no idea what I am going to do. It's scary. I may just need to take a hit and spend most of my salary on a childminder for 2 or 3 years 🤷

We chose to pay ours off (smaller amount though) when we inherited a little, as it affected our affordability when buying a house and we were already stretching ourselves as much as we could.

@Coolbreezee sorry OP I think I misread one of your 'maternity leave' as midwife or got you muddled with another poster, hence recommendations on homes near/ around hospitals. Still lovely places to live and more affordable than further South if and when you are ready.

If you are entitled to put some in a LISA to benefit from government top ups

@Singleandproud you sold Norfolk well 😉

If you were living in a house that you owned mortgage-free (or couldn't overpay any more than you already were due to the 10% limit) then I'd say pay it off. In your circumstances I'd be looking to save for a house deposit instead.

It sounds to me like that money is going to be needed over the next few years (for housing and childcare, you also mentioned not being very financially stable at the moment) so probably not the best time to be depleting your savings to pay it off.

I think you need to keep it available for maternity leave then paying London/London surrounds nursery fees. I know you said you're not a big spender but childcare could be astronomical and more or less wipe out your whole salary.

It is really scary how many people do not understand how the student loans work and that actually if she is likely to be in the category that pays it all back without write off then she should indeed pay it back as quickly as possible to minimise interest.