Repaying student loan - Scotland

[WhatToDoWithTheDough]

We are in Scotland so no fees, student loan is living expenses only.

DS has just graduated from university.
We had planned to support him financially, supplemented by him working, so we never intended him taking out a student loan.
BUT he started uni in 2020!

DH was furloughed and future of his industry looked bleak. DS couldn't get a student job so he took out the living expenses loan.
DH's job continued to be precarious for a couple of years so although we were managing to support DS we were still worried we were going to end up with me being the sole earner so DS continued to take out the student loan.

By his final year we had managed to pay his rent the whole way through university, DH had a new job and DS had been working too so he's spent very little of the loan.

DS planned to do a masters so was going to use the unspent loan money to pay the fees and living expenses for the masters.
But he's decided to go in a different direction so no longer going to do the masters and now job hunting.
It's likely to be a couple of years before he reaches the 31k repayment threshold. It's the type of industry he'll spend most of his working life earning between 35-50k.

He owes about 21k on his student loan. He has 18k in unspent loan and interest. We are in the fortunate position at the moment to be able to pay the other 3k.
So do we just wipe the slate clean and repay the loan in full now?
Or would it make more sense for him to use it towards a house deposit in a couple of years time?

Our gut reaction is to pay it off since we never intended DS having the loan in the first place. Thanks Covid!
Or does that not make financial sense with cost of rents now and he should use it to help get on the property ladder?

Any advice appreciated

Personally I would clear it, use the unspent 18k and then you pay remainder. You could always as ds to pay you back monthly for the £3k if you want him to make a contribution or just let him have it.
interest rates on student debt is v high so why let the debt just grow until he earns the repayment fee level. That’s what I would do anyway!

I was going to pay for DC but decided student loan is better and we’ll give the money as a part of a house deposit instead. If you lose your job the mortgage company will still expect to be paid but the student loan repayments would be suspended. Have a look at Money saving Expert before you do anything, Martin Lewis talks a lot about student loans..

No.

He has 18k and you have 3k. This is not an abundance of surplus money!

He needs to get a job. He needs to set a budget for paying off the student loan in 5 years (with your help) while still having his 18k lump sum for a house deposit.

Debt and interest payments is the reality he is going to have to learn to navigate. Debt can sometimes produce lots of profit if you manage it correctly.

what is the interest rate? Scottish student loans aren’t usually as exorbitant as English student loans (which were sold on), so there may be less incentive to clear it.

Interest rate now 6.5%
It was much lower when he started University

Now the rates are so high I would definitely clear it. They used to be a good, cheap way of borrowing, but not now!!

My thinking is if DC is going to be borrow money in the form of a mortgage anyway then it makes more sense for a portion of that to be a repayment to the student loans company on student loans terms rather than a higher amount owed to the mortgage company.

I swing between thinking this and then thinking just get rid of the loan while we can!
The student loan gets written off after paying it for 25yrs regardless of how much or little has been paid.
We just can't work what would be best

I paid off my student loans early when I came into some money unexpectedly and it felt really good to be free and clear of it.

I'm in quite a similar position op, except that I took my loans 15yrs ago. I'm not in a position to wipe it though. I owe more now that I borrowed.

I'll never pay it back because I'll never earn enough. On 35k you'll only pay around £5-10 per month, and then it will be wiped in 30yrs anyway.

If he really has no prospect of paying it off through his earnings there is no point in paying it back. Martin Lewis gives some good advice on this.

Martin Lewis says 'While we generally encourage people to repay their debts as quickly as possible, student loans are one of the rare cases where that'll be a bad decision for some.

That's because, under the 'Plan 4' system, you only start repaying your loan when you're earning £31,395 and whatever you haven't paid back after 30 years is wiped. So if you're unlikely to ever clear your loan in full, overpaying each month is worthless – as the overpayment's not reducing the amount you'd need to pay back at all.

The only time it might make sense to repay early is if you're certain you will clear the loan before it gets wiped.'

Thanks @Invisimamma
That's what's difficult to predict, how much he'll earn and how quickly!

He's been in communication with student loan company to get a quote and they've given him some figures.
It's currently 6.5%, will be written off 25yrs after he starts paying it. On 35k a year he only be paying about £38 a month. On 45k he'd be paying £150 a month. So if he got to 45k within a few years he'd pay it all off.
Wish I had a crystal ball

I was firmly in the “no loans if can avoid it” camp and have changed my mind. I was going to give DC the money but I think it will be good for her to learn about managing finances, she’ll be keener to keep up her job and we give her the money towards a property deposit instead.

What swung it for me is I understand you can pay it off at any time so can see how it pans out.

If he’s going to be saving for a house deposit anyway, open a LISA, put £4K into the LISA for this tax year and put £4K aside in a high interest account for next tax year. Pay the remaining £10k from him and the £3k from you towards the student loan. Forget about the remaining £8k on the student loan for now. Continue to put £4K per year into the LISA. Once he has his house deposit, then look at paying off the remaining student loan.

The 25% top up from the government, plus interest, on the LISA far outstrips the 6.5% interest on the student loan.

Hadn't thought of that approach @JustPleachy
Will look into that