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Original poster

Should I pay off my student loan?

27 replies

username0803 · 03/08/2023 20:56

In light of the interest rate rise today to 5.25%, that now means my student loan interest rate is at 6.25%. Obviously my monthly payment won't change as it's based on salary, but the time it will take me to pay it off will obviously now increase. Would I be crazy to just pay this off?

Important info:
I'm 32.
I have a pre-2012 student loan with a balance of around 4K.
I also have a mortgage of around 40K outstanding at an interest rate of 4.2%.
I have savings of 15K.

Should I just pay off my student loan or keep it saved up so I can inject more into my mortgage?

OP posts:
Calmdown14 · 03/08/2023 21:58

I have debated this but decided not to bother.
There are decent rates to be had on savings and you only pay your student loan while you are working. On that basis I'd rather have savings to pay my mortgage and other bills in the event I have an accident or get ill.

Are you likely to want children at some point? I've been part time now for a decade so don't pay a huge amount.

The downsides are that if you ever get a backdated pay rise or bonus it ramps right up but at least it goes to the balance.

I'd put your savings into a flexible account with decent interest. Yorkshire building society have one over 4% with no restrictions on withdrawals. Assuming you can overpay the mortgage by up to 10% I would put your 15k in something like that, withdraw the interest at the end of each year and use it to overpay the mortgage.

ReleasetheCrackHen · 03/08/2023 22:02

Yes, I’d clear the student loan. It’s so little and you’d be avoiding paying lots more than £4K in the long run.

BarbaraofSeville · 04/08/2023 06:21

It depends. Are you required to pay if your income reduces or stops and how likely is this to happen?

Moneysavingexpert.com will have advice on this and go through the advantages and disadvantages.

But if you put your money in the best available savings account you should earn around 5% interest or maybe even slightly more in a fixed rate so its not costing a huge amount to not pay it off.

Summerslimtime · 04/08/2023 06:32

I was always of the understanding that you shouldn't. MSE advised you shouldn't. But these rates are now so high that its going to make the loans huge if they're just left. Mine is about 1.5K and I'd love to pay it off now I think, but alas I'm not in as good as a financial situation as you.

Singleandproud · 04/08/2023 06:37

With only £4k and the money sitting there in savings I'd clear it I'd then funnel whatever the student loan deduction was into the savings to rebuild it. Mine is £30000+ and there's no chance I'll ever pay it off.

BlackLambAndGreyFalcon · 04/08/2023 06:42

I personally wouldn't. If you paid the loan off today and then had a life changing accident tomorrow which meant that you couldn't work you wouldn't be required to make any further payments on your loan, but if you'd voluntarily paid it off early you wouldn't get that extra money back (which would be quite handy to be able to access if you were in that situation). I know the odds are very unlikely, but even so I wouldn't make extra payments unless its an extremely small amount of money that you won't miss. FWIW, I have the same loan as you, and I'm not making any extra payments despite having the money available to clear it.

BarbaraofSeville · 04/08/2023 06:45

I think the best answer depends on the type of loan, amount, your circumstances and life stage.

If you're healthy and working, already have a mortgage, not expecting any changes, eg planning to be a SAHP, and the amount outstanding is relatively small, there might be no downside to paying it off.

However if you're one of the people who might never pay off the whole amount because its tens of thousands of pounds and you're a low to middle earner, especially one who may spend a period working PT or being a SAHP, then any payments above the contractual minimum based on your earnings could be completely wasted as you'll still need to keep paying until its written off. Plus you might have a better use for the money, eg mortgage deposit.

So it's important to understand how it all works for you, which may be different to others.

ReleasetheCrackHen · 04/08/2023 07:03

BlackLambAndGreyFalcon · 04/08/2023 06:42

I personally wouldn't. If you paid the loan off today and then had a life changing accident tomorrow which meant that you couldn't work you wouldn't be required to make any further payments on your loan, but if you'd voluntarily paid it off early you wouldn't get that extra money back (which would be quite handy to be able to access if you were in that situation). I know the odds are very unlikely, but even so I wouldn't make extra payments unless its an extremely small amount of money that you won't miss. FWIW, I have the same loan as you, and I'm not making any extra payments despite having the money available to clear it.

Hmm. But keep in mind if they don’t pay off the student loan and then had a life changing accident, they’d get a lot less in UC benefit. Too, they have £15k, at £16k they get zero UC at all! So that £4K would be used to replace UC they’d otherwise have and they would still have student loan debt mushrooming under the high compound interest rate.

CarpetMeCarpetYou · 04/08/2023 07:16

BarbaraofSeville · 04/08/2023 06:45

I think the best answer depends on the type of loan, amount, your circumstances and life stage.

If you're healthy and working, already have a mortgage, not expecting any changes, eg planning to be a SAHP, and the amount outstanding is relatively small, there might be no downside to paying it off.

However if you're one of the people who might never pay off the whole amount because its tens of thousands of pounds and you're a low to middle earner, especially one who may spend a period working PT or being a SAHP, then any payments above the contractual minimum based on your earnings could be completely wasted as you'll still need to keep paying until its written off. Plus you might have a better use for the money, eg mortgage deposit.

So it's important to understand how it all works for you, which may be different to others.

OP- I’m in almost exactly the same situation and was just thinking about this! Agree with the post I’ve quoted, it really depends on your situation.

Differently to you my savings are joint with boyfriend and I do feel like this is my debt (others might feel that joint is joint). I have the ability to pay off about £800 a month through cutting back on other stuff.

I also have a credit card with about £3k on it but at a 4% interest rate, I’d been focusing on that but that’s costing me £20 a month in interest and the student loan is costing me £55!

Personally I don’t think that letting £55 a month interest mount up on such a relatively small (for you and I) amount of money is a great idea, so I’ll be switching from focusing on cc to pay mine off.

Obviously if it were many thousands more and never going to be paid off (is it after 40 years?) it might be different.

ScarlettBeauregarde · 04/08/2023 07:20

I just paid mine off yesterday! I randomly thought to check and it was only 1k, I was paying it off at just over £200 a month so I pulled a grand out of savings and just called them and did it right there. Planning to pay that back into savings at £200 a month rest of the year, then start 2024 with the same amount of savings but a higher pay. Same as you I decided to do it due to the higher interest, although appreciate mine was smaller to pay off.

Singleandproud · 04/08/2023 07:54

I've just looked at mine off the back of this thread
£37000 total - paid off £151 this year so far but £555 interest has been added so definitely no chance of paying mine off

Summerslimtime · 04/08/2023 07:56

It's disgusting! My initial loan has interest of 9% now!!!

ReleasetheCrackHen · 04/08/2023 08:14

Singleandproud · 04/08/2023 07:54

I've just looked at mine off the back of this thread
£37000 total - paid off £151 this year so far but £555 interest has been added so definitely no chance of paying mine off

If no chance of paying off, best to just pay the minimums via salary deductions imho.

MariaVT65 · 04/08/2023 08:19

Sounds like you’re doing great OP :) I’m 35 and my loan is still like 17k! Doubt I’ll pay that off.

If you do decide to pay it off, call them first and ask for advice about when to pay it and how to get a refund if they continue to take it out of your salary. I’ve had several friends who struggled to get their money back for ages.

JussathoB · 04/08/2023 08:33

As your finances seem to be in a position to do it, in your situation I would probably pay off all of this loan.
Another option is to pay some of it off eg 1500 or 2k. This doesn’t change the payments you make every month ( but I think it does reduce the interest amount continuing to build up) but you then could review your situation in a year or two’s time and if you still feel able, pay off the rest. the smaller amounts seem less risky.
However if you pay it all off, then the sooner you have all your earnings every month without the loan payment deducted any more so you can save/spend/invest how you want.

BigGreen · 04/08/2023 08:35

Mine is £8k and I was having the same internal debate!

Singleandproud · 04/08/2023 08:37

@ReleasetheCrackHen I have no intention of paying anything other than the employment deductions - although I would if it was as small a loan as the OPs. Mine is so large as I did 2 x years in 2006 and then an OU degree recently.

I just view it as a graduate tax, I wouldnt have the career I have now without my degree so it did its job.

Caterina99 · 04/08/2023 09:27

I paid mine off last year. It was down to 3 k. I’m 38.

I’d always been of the opinion to leave it for all the reasons mentioned above. But I figured I was going to actually have to pay it all back in my working life, and the interest rate was getting really high. It’s definitely nice not to have to worry about it anymore or have those deductions off my salary.

TheWayoftheLeaf · 05/08/2023 01:22

No idea tbh. £4K sounds a dream to pay off. I started uni in 2013... £67k of debt right now. More than I left with even though I've been paying it off. I try not to worry about it. It'll never be paid.

TheWayoftheLeaf · 05/08/2023 01:24

Summerslimtime · 04/08/2023 07:56

It's disgusting! My initial loan has interest of 9% now!!!

Lol 9%. I'm on 12%. It grows and grows. If I do pay it off it'll be more than overseas students pay. The government knows exactly what they're doing.

£67k. For 4 years of study and a minimum loan. Lovely.

Summerslimtime · 05/08/2023 09:06

#TheWayoftheLeaf your interest rate is 12%??? Is this a UK loan??

limons · 05/08/2023 09:12

For it would depend on how long it's going to take you to pay off that £4K, what are your monthly payments currently?

Mine is around £12k I'm paying about £350 a month now, last time I checked it's going to take 3 years, hopefully you'll pay down £4K relatively quickly?

limons · 05/08/2023 09:13

And if you're in the last year I think they advise switching to DD to avoid overpaying, so it may be worth paying off if you're in the last year and need to sort some admin on it anyway!

SueVineer · 05/08/2023 09:40

I would pay it. The interest rate is high and the amount is such that you will almost certainly have to pay it off during your working life. Delaying repayment is just costing you more money.

caringcarer · 05/08/2023 09:46

My DD payed hers off really quickly after she got her job and saved herself so much on interest payments. Her best friend from uni just pays the minimum off each month but has repaid so much more than DD as lots of interest. I'd just bite the bullet, pay it off and save yourself interests. If you are not paying it each month then you can rebuild your savings although you might be better overpaying on your mortgage too.