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.

I think another smaller factor was that some people were hoping for a debt wipe in the future and would feel silly paying it off if a future government forgives the debt.

I would have thought it is more likely they will extend the period before it gets written off rather than write off now. I'd pay it back - being student debt free is a very satisfying feeling.

Are you eligible for a credit card with an interest free period? Maybe put some on that and pay that off during the period to save some interest.

Don't waste your money on the student loan..., Nursey fees are coming.

I would pay down 10k and invest 10k in stocks and shares for my child. I would then pay off aggressively over the next 12 months or whenever you are back at work so it doesn’t feel like a huge chunk from savings.

God no, save your money for a deposit

surely if debt was at lower interest rate than savings this would also apply?

e.g. I've done the MSE calculator about paying off my mortgage and atm it said it was still better to keep the money in savings as that's higher than the mortgage interest rate.

It'll be even further away if you put £20k to your student loan.

Absolutely not!!!

I would wait until you're back at work before considering paying off. Things can change when you're back from mat leave and there will be other things to consider

• childcare
• childcare fees
• some parents find childcare to be too expensive and decide not to work
• redundancies (not related to mat leave but you may not know how the organisation is performing)
• child may not like childcare and you choose to go part time

All this will affect income, once you're settled then decide how much of savings you need to keep for yourself and your new normal and how much you can put towards the debt.

And as everyone else had mentioned - at that point calculate if it will be beneficial to pay off in full.

In your position I would pay it off. You're very young. I did some calculations on a friend's post grad loan this week with them and basically if they paid it back now, they would have paid the same amount in increments in 12 years time, but not paid it off due to interest. They're the same age as you. If they continued to pay it with interest at the set rate it would take them to 67! They earn just under 35k but set to go up and so paying it off, at least the post grad, would work out better for them. If you were much much older and nearing retirement my reply would be different, but given that you're very young the sooner you pay it off the less interest and cost you will pay over a lifetime, which will be significant.

Thank you everyone for all the helpful replies. It seems opinion is divided but it has been very helpful to consider the range of perspectives. I am leaning towards paying the whole loan off for these reasons

1. I am fairly young and will most likely pay off the whole loan plus a significant amount of interest which could be avoided
2. I need to maximise my salary as a single parent. Student loan means I will only be eligible for a smaller mortgage and also make private renting harder as I have less disposable income
3. I hate having debt loom over me
4. I am in a good position to save when I go back to work as I do not currently have accommodation costs (thanks to my wonderful father who is helping me through a very difficult point in my life for which I am grateful beyond words).
5. Childcare would take up about 65% of my salary but am prepared to take the hit for my career progression. I would not need to use savings but could cover it with my salary

The other side is saying don't pay it because there are too many unknowns and It would be good to have a significantly bigger safety net. 🤷
I could use the money to take an extended maternity leave and avoid nursery fees almost completely.

why does it have to be all or nothing? You could pay half now and half in a couple of years time.

if you are in the position where you will likely pay it off without write off then yes it does make sense to try and do it earlier but also to balance it without impacting your current savings position too much. No student loan and no savings leaves you in a precarious position.

Eventually. But if you are a middle earner you will end up probably paying it off and also having paid lots of interest

7% is a rather high interest (my loan was at 1.9-2.4% so I paid the minimum for few years). Are you able to borrow the amount at a lower rate and repay the student loan? This way your liquidity isn’t affected and you can repay some of the lower rate loan over the next year and reassess after your maternity leave?

@CasperGutman I dont know a single person who didn’t pay off their student loan. My peers repaid theirs within 5-7max yrs after uni. I paid mine off 5yrs after I graduated.

I wouldn’t in your circumstances.

Absolutely not. You need to mazimise your savings. There are just sooo many uncertainties with having a child and your anticipated earnings may not happen (if you have to work part time etc ).

This. There is a real danger as a mid to high earner you will pay vastly more back if you don’t pay it offf ASAP.

I wouldn’t pay it off in your circumstances. We’ve had the same discussion with our Son who left university 11 years ago and his student loan hasn’t really gone down that much. His loan is 25 years, then it gets written off. So we worked it out, based on his current salary and as long as he keeps working that it would be best to pay off what’s owed now, but he’s single and lives at home. But please don’t see it as a debt.

Fat chance of that happening, I think.

You say your salary will be £35K in 12 months time. Personally, I would wait for the first pay check. A lot can change in a year - including company going out of business, change of plans, etc.
In that year I would put £30K into 1 year fixed savings account (no access until a year has passed) and £10K into instant access saver account (in case of emergencies and living expenses) with a lower interest rate.
Once you are sure that you are actually getting paid what you have expected, then I would pay loan in full.
Here's rough calculation of payments using yearly figures:
7% of 21K is £1,470 of interest per year with actual payments from your 35K being £693 per year (if plan 2) - meaning that you are actually not chipping away at the student loan but incurring £777 of interest. You then pay interest on that interest in next year, and so on. Until you start earning more and actually pay capital + interest. This will take you years (before you get to that point you will be servicing that 7% interest rate giving away your money).
I would also watch out for student loan company announcements. At one point I read that if I would have paid £1k against loan as a one off payment, then £800 would be written off - which I did (don't remember exact figures as it was years ago).

Good for you! Amongst those who took out loans pre-2023, you're in a privileged minority (a sizable minority, 49% apparently,* but still a minority).

Of course, this varies between universities and subjects. Some courses appeal more to students from affluent backgrounds, who won't take on as much debt and are disproportionately likely to end up better paid. Some courses actually qualify people to get well paid careers at a higher rate than others (e.g., most medical graduates end up earning a reasonably good wage, though perhaps not as high as if the same motivated, hard-working and academically gifted people went into other careers).

All that being said, given that on average over half the people you were at university with won't pay off their loans, it seems highly likely that you know some people who haven't paid them off and never will. It seems unlikely to me that you actually know the student loan repayment situations of that many people. I really can't remember ever having discussed the personal financial situations of even my quite close friends from university, still less having a conversation with everyone I know such that I could make a definitive statement that "I don't know a single person who didn't pay off their student loan"!

*This will change for future generations as they will be expected to make repayments for longer, but if you've already paid off your loan then you're well within the pre-2023 students bracket. Blog: future graduates will pay more in student loan repayments – and the poorest will be worst affected | CLS (ucl.ac.uk)

To simplify the maths I am assuming
(a) you are on a "plan 2" loan (interest 7.5%) and for simplicity I will assume this rate stays unchanged
(b) you earn zero for the next 12 months then £35k for 12 months with annual rises of £5k until you hit £50k in 4 years then stay at that level long-term.
(Real life will vary obviously)

Then by November 2029 your debt will have increased to £24,000. You will have had interest of just under £8.5k added and will have made payments of just under £5.5k.

Until you are earning £50k your monthly payments will be less than the interest added each month and the debt will be increasing. Once you are on £50k each monthly payment of circa £170 will be mostly interest but £25 per month will be actual loan repayment. If that remains steady until approx 2046 when the debt will be forgiven you'll still owe about £14,000 and that debt will then be forgiven. You will have made approx £40,300 in repayments by that point.

Obviously meanwhile you'll be benefiting from having that £21,000 available to you.

It's not an obvious choice - although the amount you'll pay if you don't pay off the loan as a lump sum is eye-watering the real value of ££££ in the bank now is much greater than the future commitment to pay ££££ gradually over the next 22 years.

Personally I would lean towards paying it all off now but that requires a solid faith in the career trajectory you have outlined. Life happens. You could get pregnant again in 12 months and end up going part time and never getting to the £50k salary.

Absolutely not. Go to MSE and read the info there. I am pretty sure in your circumstances the advice would be not to pay off the student loan. It isn't like normal debt.

If your circumstances change, you could end up not earning enough to need to repay student loans. In which case, your lump sum would be much better used elsewhere.