Should DS pay off his student loan asap

Kiki105 · 2022-05-28T22:40:03+00:00

My DS went off to Uni in September 2020 but by April 2021 had dropped out and come home due to Covid ruining the whole experience and course for him. During that time he was given £10,000 for fees and living allowance. He's now got a full time job but unlikely to earn above the threshold for some time to start paying this off through deductions from his salary. My question is should he start making personal contributions now to clear this debt rather than allowing the debt to increase over time due to the added interest it will accrue.

TooManyPJs · 28/05/2022 23:49

It depends on whether he think she's going to earn enough to pay it off before it's written off or not. Bit more tricky to work out with a lower amount but have a read of these:

www.moneysavingexpert.com/students/student-loans-repay/

www.moneysavingexpert.com/students/repay-post-2012-student-loan/

If his earnings are going to stay low then he may not have to pay any back at all.

If you pay voluntary contributions you can't get them back later if you realise it was not in your interest to make these payments.

TizerorFizz · 29/05/2022 00:53

It’s not a debt is it?? It’s a grad tax. It doesn’t ever have to be paid back if earnings stay low. So pay it when required. It’s not sensible to pay it off. Where would the money come from? Doesn’t he have a better use for £10,000? He might never be paying much every month. However he didn’t get any value from it. Would he try again?

yesterdaytheycame · 29/05/2022 01:21

Is there a moral reason why you think the student loans company (if that's who still does it) should have that money?

vanguardian · 29/05/2022 01:34

TizerorFizz · 29/05/2022 00:53

It’s not a debt is it?? It’s a grad tax. It doesn’t ever have to be paid back if earnings stay low. So pay it when required. It’s not sensible to pay it off. Where would the money come from? Doesn’t he have a better use for £10,000? He might never be paying much every month. However he didn’t get any value from it. Would he try again?

Actually, at £10k there is an argument that it would be much better for him in the long term (financially) if he worked hard to clear it, before the crippling interest rates take hold and he might have it round his neck for two decades.

TizerorFizz · 29/05/2022 08:33

£10,000 loan is chicken feed by most student loan standards. It’s not even one year of fees plus maintenance loan. The student loan will never be held against him for future credit. The interest is a red herring if he doesn’t earn much! He never pays any interest. Also the vast majority of students take out loans and have to put up with the interest rates. They still buy houses and have a life! Even with a £50,000 loan. Everyone will manage them and university recruitment is not reducing.

Pay it back if he’s well off but otherwise would it be better to use it towards a deposit for a home?

sashagabadon · 29/05/2022 08:38

I would encourage him to clear it asap. Interest is adding all the time and the interest rate is currently quite high, he’ll end up paying back well in excess of 10k. Could you clear it for him and then he pays you back with no interest added?

QuebecBagnet · 29/05/2022 08:46

If it’s only 10k then over his life he will pay it back unless he’s going to be on poorly paid jobs all his life. So I’d pay it back now.

Badbadbunny · 29/05/2022 08:54

TizerorFizz · 29/05/2022 00:53

It’s not a debt is it?? It’s a grad tax. It doesn’t ever have to be paid back if earnings stay low. So pay it when required. It’s not sensible to pay it off. Where would the money come from? Doesn’t he have a better use for £10,000? He might never be paying much every month. However he didn’t get any value from it. Would he try again?

But if he earns more then the repayment threshold in future years, he could end up paying far more than the £10k he borrowed because of the ruinously high interest rates on student loans. OK if he only even intended to earn less than, say, average wage levels, but if he is likely to earn more than average, then it could be very expensive for him. He can't wait until say 10 years to see if he is going to earn more and pay it off then as the interest has been building up for 10 years and the debt would already then be over £20k (at current/projected interest rates)!

It really comes down to his best approximation of earnings over the next 30 years! (And a bit of guesswork as to whether the earnings threshold for repayment rises in line with average wage increases or whether it stays roughly at current levels dragging more and more people into repayments as their wages rise!).

jayritchie · 29/05/2022 09:26

Depends a bit on whether he might go back to university. If he does - he would usually be better off not having repaid the amounts he has built up already.

fallfallfall · 29/05/2022 09:29

No guarantee that the terms and conditions won’t change. I’d repay.

Snowiscold · 29/05/2022 09:33

QuebecBagnet · 29/05/2022 08:46

If it’s only 10k then over his life he will pay it back unless he’s going to be on poorly paid jobs all his life. So I’d pay it back now.

depends what you mean by poorly paid. The threshold is just under 28k, which seems a decent salary to me. I wouldn’t pay it off.

Asparaguspatchkid · 29/05/2022 10:11

Very tricky topic. Martin Lewis says no, but personally I would pay it off.

However that's based on my own situation of knowing I would go on to earn far more as my career progressed.

I did finish paying mine off a few years ago, with a lump sum payment at the end and it's so nice to not have that deduction on your pay.

However there's lots to consider. Money Saving Expert has a very useful in-depth article on this which covers multiple scenarios, worth a read for you & your DS.

vanguardian · 29/05/2022 10:35

QuebecBagnet · 29/05/2022 08:46

If it’s only 10k then over his life he will pay it back unless he’s going to be on poorly paid jobs all his life. So I’d pay it back now.

My concern is that he wouldn’t pay it back because the interest is huge and I would worry that the size of the debt would run away from him, so to speak. So he would be liable to pay for much longer.

yes Martin Lewis’s advice isn’t really appropriate in this situation as the loan is only £10k. The sunshine are different.

vanguardian · 29/05/2022 10:36

The sums are different!

Xenia · 29/05/2022 12:39

If he will earn a fair bit over time then I would get it paid back. One reason my children do not have student loans (and I paid) was that - 2 are lawyers and 2 almost are so in the perhaps rare situation of us being fairly high earners it made sense not to have the loan. The middle child might indeed never have paid any back but is still glad he has no loan.

Badbadbunny · 29/05/2022 15:41

Snowiscold · 29/05/2022 09:33

depends what you mean by poorly paid. The threshold is just under 28k, which seems a decent salary to me. I wouldn’t pay it off.

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30 years is a long time. There's no guarantee the £28k threshold will increase each year. £28k could well be national minimum wage in 30 years meaning everyone with a loan would be making repayments.

Lentils · 29/05/2022 15:42

@Kiki105 You can use this calculator to plug in his circumstances: www.student-loan-calculator.co.uk/

HillCrestingGoat · 29/05/2022 15:54

I would say at £10k I would encourage him to pay it off now. If he is living at home then this would be the ideal opportunity to save hard and get it paid off. It also means that it may help him long term learn to save for a house deposit if he is already used to saving. There is no guarantee that he won't end up earning over the threshold at some point and then the tax he will pay for his student loan may well last decades.

Ds will come out of uni with around £40k of student loans. In those circumstances he would be better using any savings for a house deposit and that is his plan. £10k is very manageable to pay down.