Active discussions

Meet the Other Phone. Flexible and made to last.

Meet the Other Phone.
Flexible and made to last.

Buy now

Please or to access all these features

Talk
Money matters

Find financial and money-saving discussions including debt and pension chat on our Money forum. If you're looking for ways to make your money to go further, sign up to our Moneysaver emails here.

Original poster

Should I pay off my student loan?

30 replies

BlueMediterranean · 11/08/2020 17:14

Hi all

My partner and I would like to buy a house next year and also we are curently trying to conceive and hopefully we will be successful in the next few months.

I finished university 4 years ago with a studuent loan of £9,000 and somehow I still have to pay £9,396!!!! The interest is 2,4%

It would be stupid if I use a big part of my savings in pay off my student loan?

I'm trying to find information online and some people think it is better to just consider the student loan as an extra tax until it is wiped in 30 years. However, my partner thinks it is better to be debit free specially if I have to pay interests.

What would you do?

Thanks

OP posts:
homemadecommunistrussia · 11/08/2020 17:20

Moneysavingexpert has lots of discussion on this. Terms and conditions on loans have changed over the years and the advice would be different accordingly.
I think generally student loans aren't looked at in the same way by mortgage lenders as other kinds of loans.
Things to think about
If you paid it, would you still have enough for a deposit?
Do you foresee your income reaching the payment threshold in the next few years?
Student loans are awful.

Hopeislost · 11/08/2020 17:21

If I were you I'd try to work out if I would pay it off before it gets wiped. You can estimate this using the end date and your monthly payments. If you'll pay it off in full before it's wiped then it's worth it.

RedHelenB · 11/08/2020 21:57

If you are young I'd just get ot paid off if you have savings to cover it. One less thing to worry about.

grafittiartist · 11/08/2020 21:59

I was going to say that Martin Lewis is the man to ask too.
Money saving expert is probably a good start.

BuffaloCauliflower · 11/08/2020 22:00

No, use your savings for your house and baby. Student loans aren’t like other loans, they don’t stand against you on a mortgage application, they are more like an extra tax. Only time it’s worth it is if you’re a very high earner.

Awkwarddough · 11/08/2020 22:01

Howcome your student loan is so low if you only finished 4 years ago? Is this an actual loan from the student loans company or from elsewhere?

If it is an SLC loan Don’t pay it off. It won’t be taken into account when you get a mortgage

If it’s not then you should pay it off.

I finished uni 4 years ago too and have £50000+ of student loan debt, didn’t stop me getting a mortgage.

Whenwillthisbeover · 12/08/2020 05:46

Op could have been an NHS student, DD finished two years ago, hers is about the same. No uni fees for NHS degrees at that time and the maintenance loans Offered were less than for regular students as there was a non repayable bursary.

I don’t think Martin Lewis takes these small loans into account, despite what he says About other student loans I think a loan this size should be paid off if you can. I fail to see how paying interest for thirty years can be in your favour.

BarbaraofSeville · 12/08/2020 08:17

Do not pay a penny off it until you understand the implications of doing so. It could be a total waste of money, this is especially the case for people who went to university more recently and graduate with £40/50k of 'debt' that most will have wiped 30 years after graduation.

People have paid chunks off if they've received an inheritence or whatever, and it's not reduced the amount that they need to pay because of the way the system works.

This is the information you need, but make sure you read the right section, depending on when you took out your loan.

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

BarbaraofSeville · 12/08/2020 08:18

I finished uni 4 years ago too and have £50000+ of student loan debt, didn’t stop me getting a mortgage

And unless you spend the next 30 years in an above average paying job, you won't pay off anywhere near that £50k so it could be a million pounds of debt and it would make no difference whatsoever to what you pay.

Mustbetimeforachange · 12/08/2020 08:21

I don't know about NHS type student loans but generally don't see student loans as a loan but a tax. If you go over the payment threshold you pay the same per month whether you owe £10K or £100K, so effectively it's a tax, not a loan.

user1497207191 · 12/08/2020 08:25

It really depends on your likely future earnings. If you're only ever going to be an average wage earner or less (working part time or SAHM etc), then you may end up paying less in repayments than the £9k you owe now, so it's a no brainer not to pay it off.

BUT, if you think you're going to earn more than average wage for the next 30 years, and therefore paying the repayments every month, every year, you could end up paying tens of thousands in total. When you look at the repayment charts, the interest added is brutal.

Whilst I respect a lot of what Martin Lewis says, I think he concentrates too much on student loans for the lower earners who'll never pay much, if any, of their loans back. He uses statistics like x% of people don't pay off their loans and it's a huge number, something like over half. But that includes people who've paid back a lot more than they've borrowed, just not FULLY repaid it, including all the interest. So, say, someone may have borrowed £25k and paid back £50k by the time their 30 years are up, but it's still not fully repaid as there's still a balance oweing due to the interest, so that person gets included in the high percentage of people who don't fully repay it, even though they've repaid the actual amount borrowed plus lots of interest too!

lurker101 · 12/08/2020 08:26

Remember U.K. student loan payments are based on your pay - so if your salary is significantly reduced by Maternity leave or if you choose reduced hours after having a baby your payments would be reduced too.

I have just calculated my repayments and when I should be student loan free using this calculator - it will show you the interest payable in that period too. In my circumstances it seems to be more beneficial not to do a top up payment. www.student-loan-calculator.co.uk/

lurker101 · 12/08/2020 08:29

@user1497207191can you show me where you saw the numbers showing this? I’m interested because my loan (Started pre-2012) is not showing much interest at all. Is it people on my loan plan too or only the new plan that are having these issues?

Skyliner001 · 12/08/2020 08:35

Student loan will not cause a problem with your mortgage. It's like a tax. Pay off if you want to but it's the lowest priority debt.

BarbaraofSeville · 12/08/2020 08:37

2.4% isn't that high an interest rate anyway. If the OP paid off her loan, that would be £9396 less she had available as a mortgage deposit/to keep as savings.

Her mortgage interest rate could be close to 2.4% especially if she tips into a higher loan to value bracket due to a small deposit, so she'll end up paying the interest anyway, just on her mortgage not her student loan.

Therefore, she is almost certainly better off putting her savings into her mortgage and letting the student loan run it's course, unless she starts to build up a lot of savings earning a lower interest rate and it looks like she is earning enough to pay her student loan off in full.

cupoftea84 · 12/08/2020 09:00

The advice about mortgages isn't entirely correct. The mortgage company won't view them as bad debt but the deductions are still taken into account when considering affordability. Very much in the same way child care costs would be.
It therefore reduces how much a bank will lend you and they're getting pretty tight on it at the moment.
I'm sure Martin Lewis has a calculator but if you'll pay off more over time than you would if you cleared it quickly and it makes a mortgage affordability calculator easier I'd pay it off. If not pay as little as possible.

Awkwarddough · 12/08/2020 10:07

@BarbaraofSeville I don’t pay any of it currently because I only work part time so my earnings aren’t high enough. It’s constantly going up due to the interest.

Original poster
BlueMediterranean · 25/08/2020 16:57

If you paid it, would you still have enough for a deposit?

I will have enough money for the 10% but I would like to pay as much as I can as a deposit so my mortgage is afordable.

No, use your savings for your house and baby. Student loans aren’t like other loans, they don’t stand against you on a mortgage application, they are more like an extra tax. Only time it’s worth it is if you’re a very high earner.

Yes, that’s the biggest thing is stopping me to pay it. I will probably work part time and earn less money for around 4-5 years until my kids (I would like to have 2) can have access to free school.

Howcome your student loan is so low if you only finished 4 years ago? Is this an actual loan from the student loans company or from elsewhere?

I studied my degree abroad and in the UK I studied a postgraduate (1 year)

OP posts:
HeartZone · 25/08/2020 17:25

Definitely don’t repay it! Chances are you will never pay it off. Use the money for your new house.

user1497207191 · 25/08/2020 19:31

@HeartZone

Definitely don’t repay it! Chances are you will never pay it off. Use the money for your new house.
Dangerous advice. For some people that advice is right, for others it could cost them tens of thousands in interest. The number paying it off figures are misleading - you could pay more than you borrowed but still not pay it off because of the interest added each year - you'd still be included in the "not paid it off" numbers, despite potentially having paid thousands in interest along the way. People need to look at the online calculators, do a forecast of their earnings over the next 30 years and see how they'll personally be affected.
user1497207191 · 25/08/2020 19:34

@BarbaraofSeville

2.4% isn't that high an interest rate anyway. If the OP paid off her loan, that would be £9396 less she had available as a mortgage deposit/to keep as savings.

Her mortgage interest rate could be close to 2.4% especially if she tips into a higher loan to value bracket due to a small deposit, so she'll end up paying the interest anyway, just on her mortgage not her student loan.

Therefore, she is almost certainly better off putting her savings into her mortgage and letting the student loan run it's course, unless she starts to build up a lot of savings earning a lower interest rate and it looks like she is earning enough to pay her student loan off in full.

From 1/9/20 the interest rate is a whopping 5.6%
Spam88 · 25/08/2020 20:49

Obviously it's all guesswork, but if you know what sort of salary you're likely to be on and when you're likely to start working then you can calculate whether you're likely to pay it off before it's written off. If you'll definitely pay it off in well under 30 years then you'll save yourself money by paying it off sooner - that said I think one of martin Lewis' arguments for not paying them off was that if you find yourself short of cash further down the line then you won't get a loan with as good an interest rate as your student loan had, don't know if that applies to post-2012 loans though!

In terms of your mortgage, it won't be viewed as a debt as such by mortgage providers but your repayments will be taken into account when assessing affordability, affecting how much they'll lend you. So it's whether getting rid of that monthly outgoing or having a larger deposit will get you the amount you need I guess! Perhaps a mortgage advisor would be able to run through both scenarios with you?

Frazzledme · 26/08/2020 08:54

What you need to figure out is the likelihood of paying it off within 30 years. If you will then pay it off sooner as the interest IS high.

If you're unlikely to pay it off, pay off the minimum.

I had a 2002 loan which isn't wiped after 30 years, so faced with a nearly 50 years of interest I paid mine off early. I'm glad I did as the interest charged made me feel a bit sick, especially as it started when I was 19 and was 6%!

user1497207191 · 26/08/2020 16:43

I think one of martin Lewis' arguments for not paying them off was that if you find yourself short of cash further down the line then you won't get a loan with as good an interest rate as your student loan had

But again, you have to do the Maths. The interest you save by paying it off early could be a lot more than the cost of the interest if you take out a loan/mortgage many years later.

Dinosauraddict · 27/08/2020 07:49

I'm overpaying mine as I will definitely pay it off within the timeframe that it's wiped, don't like paying interest on it, and at the moment it affects my mortgage affordability calculations and the amount of disposable income I have each month to the tube of a few hundred quid!