Repayment of student loan

[BubblesBuddy]

My DD is self employed and her gross earnings will be around £90,000 for a year. She has done three years post grad training and one year self employed. Her student loan is now looming large! She is a pre 2012 student (2010 start) so the threshold is around £18,350 which obviously she exceeds. We also have investments for her worth about £100,000 and she has already received £270,000 deposit for a property. We have an interest only mortgage on our house for the difference.

However, should she pay off the loan which is now £26,000? I don’t know if she pays 9% of her gross income above £18,500 or whether her expenses can be allowed and she pays the student loan on her taxable income which has yet to be calculated? Does anyone have any experience of student loans when they are a high earner? What to do?

Surely you can afford some tax advice for her?

I would have thought her repayments would be based on her taxable income after any pension contributions.

If her taxable post pension income is £88.5k, she will pay back about £6k pa so will pay it back in 4 or 5 years plus whatever time the interest adds on if you see what I mean. Obviously pay back less and take a couple of years longer if she has substantial expenses to deduct from her gross salary.

Does she foresee earning a similar amount for the next few years and will paying this amount affect her finances/lifestyle at all? What's the interest rate?

The amount repayable seems smallish compared with the money available to just pay it back, but obviously the risk is that if her circumstances change in the near future, that would take her outside student loan payments (loss or significant reduction in income for whatever reason), that money could have been technically wasted.

It's only worth a minority of people paying off ther student loans faster than the minimum, and your DD is an obvious candidate. But there's always the 'what ifs' and loss in growth in investments to consider. May also be inheritence tax issues to consider and the obvious matter of paying off your own mortgage and the interest rate on that, plus what happens if interest rates rise significantly, or Brexit fucks everything up. Perhaps worth asking your accountant/financial advisor?

Don’t do it. If she’s still on the old style plan she won’t be hit by punitive interest rates and might not earn as much forever. She will be paying high monthly payments but will always have the security that if her income drops those payments will too. Shes in a fabulous position with the investments and deposit. I ended up finishing paying off my loan a few months after I came back from maternity leave. It was very helpful that my payments dropped to 0 when I stopped earning during mat leave. That’s the benefit of the student loans.

When I did salary sacrifice, my earnings amount was post pension but I’m pretty sure in previous years it was based on total gross salary. I’m not sure how it would work for self employment.

I saw your other thread too. I assumed the loan would be based on her income after expenses - her taxable income. I cannot see how it could fairly be any other way. Plenty of sole trader business might turn over loads but goods they resell cost so much their taxable profits are quite low. However I have not checked the rules.

Anyway I think she should pay it off to be done with it. I note the points made above about IHT. I have helped children with property (and to graduate without loans). I am hoping I will die in about 20 - 30 years after that so IHT probably not likely to loom very large. The bigger risk with parents helping with property is the child divorces and the spouse gets the money or half of it. I also have a neighbour whose adult child sadly is very ill with cancer so what was given to the child is having to be moved back to the name of the over 70 parents. Sadly life is not always predictable. I think there is a huge psychological benefit in being student loan free which some people shyould factor in. Also for those whose children may obtain a mortgage later they do ask about your spending, look at your bank statements, laon repayments, other lloans, car loans, credit card debt, examine what you spend on going out (and childcare - so always buy before you have babies if you can)