Should I pay off the student loan early?

[olympicfan]

DC has just graduated and the student loan already has 6k worth of interest added. (Borrowed 46k, now owes 52k). The current interest rate is 7.8%! They have got a job that starts on 35k but will be earning 50k in 2 years time. The job comes with accommodation so they will not be thinking about buying a house for about 5 years.

I had an inheritance and have also saved for DC so can afford to pay off their student loan before any more interest is added. Is this a good idea or madness? They are likely to be a high earner, but not city-lawyer type money.

hell yes i would without hesitation

as long as wouldn’t mean my retirement fund is so meagre as to result in me needing my daughters assistance!

We paid DC1 early through the remortgage. DC1 paid more than 10k in the first two years and found the loan increased a lot (not decreasing).

If Dc is going to earn reasonably such that they will pay off the loan in their working life then yes absolutely, save all that interest from accruing.

Whether you are in a position to fund that only you know

You need to get a calculator and work i t out given the sums repaid are 9% of earnings over the threshold (not the interest rate being applies) so it is not a simple sum. I paid my children's fees so they had not loans because I knew they probably earn quite a lot - 4 of them are London lawyers so I was right for most of them. However had they been likely to be on low salaries or to give up work when children came then it might not have been wise to have paid (other than that I would save the state some burden I suppose )

Yes, we are in the position to pay the 52k. Our thinking is that if DC has a job paying 50k in a couple of years and no accommodation costs, then they can save this money back out of their own wages over the next few years.

I would rather help them out now rather than they get an inheritance in 30 years time. We ended up getting an inheritance when we were financially ok; we needed it it in our 20s and 30s.

What you need to try and estimate is not what the loan amount is now/or what it will grow to with interest in the future but what the repayments are going to be over the lifetime of the loan. That's because most people on you DC loan plan will only ever pay back a portion of the loan before it's written off. So based on salary they will have from now until it's written off you want to estimate what you think is the payment might be each year - ie the 9% they pay over threshold.

In general for v high earners or those will low loans it might work out better to pay off. For low earners it almost certainly works out better not to. But it's not clear cut.

Absolutely I would - as others have said, as long as it doesn't impact on your own financial stability. Neither of our DC had student loans - we may have had to cut back a little, but they are now earning well over the threshold, and that is something they don't have to worry about. The interest on these loans is shocking.

I would pay it off yes, for sure
be prepared for an administrative nightmare
they don’t actually want you to pay it off
52 grand is eye watering (I know it’s pretty standard).

We plan to pay off DS maintenance loan this summer when he graduates and he will pay us back month by month.
GP have already paid for tuition fees.
Will do the same for DS2.

What? Why? That's incredibly convoluted.

The received wisdom is to help with housing before attempting to clear a child's student loans.

Was it you who posted a near identical thread yesterday OP?

MSE has a good page that explains the reason why student loans should be the last thing you help out with, financially speaking.

Money Saving Expert have good resources to help decide what works best for your family's financial planning. Including just the situation you are trying to decide upon. Martin Lewis is also campaigning to have the statements students receive changed so that they no longer show only what is "owed" but what students will actually realistically pay off so that they can make better informed decisions . In the most extreme circumstance for example - only a few years of work and then SAHP for 20 years with some part time work. In that situation the interest will rack up month by month to a truly alarming amount but the student will not pay it and it will get written off .

www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/

It's a tax, not a 'loan'. Most people will never have to pay it off. If you want to help, put money towards accommodation.

I hadn't really looked into this that much. Are there limits as to how much you can pay? penalties for overpaying, like a mortgage? Should Dh and I make as big a payment as we can in year 1 and 2, because that's where you save the most interest, like a mortgage?

As a PP says it operates like a tax not a loan - I'd say only wealthy people with DC who are expected to earn high salaries over the 30 years should pay off. For virtually everyone else the money is better used in other ways. The link below to MSE explains it all and there is a good video too

I’d think about whether the lump sum is more useful to them towards a deposit for a house. If it is an either/or situation then it may be more cost effective for them to have it as a deposit.

About 60 pound a month is what he will repay on a 35k salary. Seems bonkers to Chuck 50 k in one lump sum at this when he could use it for a house deposit ? They only repay 9percent over 27k so 9 percent of 8,000 in your case. I wouldn't

I’m on plan 1 @ £35k salary and it’s about £100 a month. I’ve been paying it back for 20 years (obviously not always at this salary). Still owe more or less what I borrowed. It’s definitely crossed my mind to pay it off if I was to come into money. I know a relative wishes for me to use any inheritance I receive from them to ensure my 2 kids graduate without any debt and I will do my best!

Can you just give your children this amount of money in one go? I thought there were yearly limits, unless the amount was such that you wouldn’t miss it from your daily spends. 50k is a lot of bread and milk.

Maybe you can give it but it’ll be taxed (which end?).

Alllthepotatoesaresinging i would rather give 50k for a deposit than save them 100 a month ! You can't look at it as a loan it's a tax

@AllThePotatoesAreSinging - yours is a good example. You are now paying £100 and have paid that for 20 years (some of time less as you were on lower salary. So far you've paid £24k or less. If it gets written off at 25 years you only have 5 more years to go! And would only have paid back another £6000 so £31k in total. It looks like some plan 1 loans don't get written off until you are 65. So you'd need to check which one you have but say you had to pay £100 per month for 45 years you would still only pay £54k over whole loan. Not the amount it says in your statement.

More recent loans are mostly 30 years. The ones stating this year will be 40.

Mine doesn’t get written off after 25 years unfortunately, I’ve got another 23 years to go. Not even half way there. Will be 43 years in total. So plan type will also have an impact on the decision. I agree that a projected repayment figure should be included.

This is the worst advice. Give him the money for a property deposit instead.

It only becomes subject to tax if you die within 7 years of giving the gift.