Should I pay my student loan off?

MarkC84 · 3 July 2017 at 5:16PM

Hello all,
I am new here and this is my first post, however I have been lurking on these forums for some time and have always found advice here extremely valuable.

I was really looking for advice on a large financial decision that I will have to make relatively soon and I just wanted to make sure it was actually the right decision before committing. Apologies if this question has been asked already.

Last year I graduated from university and am due to start a new graduate role next week on £21,000 p/a. As a student that studied from 2013-16, I am on a Plan 2 student loan and owe £20,800 in loan/tuition fees to the SLC. I was in a fortunate position of living with one of my parents who allowed me to live relatively cost free whilst I studied, so in this time I was able to put aside most of the maintenance loan money as well as grant money that I was entitled to during this period in the hope of buying a house once I was in full time employment.

The result of this saving means that I currently have around £15,000 put aside in a Santander 123 account and £4800 in a government help to buy ISA (3.5% interest p/a). I recently received a summary of what I actually owe from the SLC and since 2013 I have been charged £1900 interest (mainly due to Plan 2 interest rates being extortionate as reflected by the current rate of inflation). I am now being charged roughly £80 a month interest.

I have been told by a few of my friends to not pay the loan off, even in spite of the 4.6% interest rate currently being charged at the moment. My question is, should I pay the student loan off in its entirety or should I take heed of advice given so far and invest the money towards down payment for a house?

I welcome your opinions!

Many thanks,
Mark.

MarkC84 · 3 July 2017 at 5:30PM

Apologies, I have just realised this should have been posted in the student money saving section. Is there any way I could move this?

Thanks,
Mark.

Mogley · 4 July 2017 at 12:46PM

This is not just a simple money balance issue. This is dilemma is dependant on your chosen career, planned house location, cost and planned purchase date.
Just to be clear, do you have a current student loan balance of £20.8k and could potentially pay off £15k leaving you with a balance of 5.8k?
Further questions from me are:
1) Does your chosen career have high potential earnings?
2) How much would your first house potentially cost?
3) When do you plan on buying?
4) How much are you able to save/month now?

My general opinion is (without the information asked for above):
1) Use the money as a deposit for your first house.
2) See the loan as just additional contributions you have to make via your salary and ignore the rising balance for now.
3) Join any workplace pension scheme and ask if they do salary sacrifice to reduce your taxable salary. This is used to calculate your student loan contribution and hence you'll have to contribute less/nothing.
4) Have an aim in life always to have savings available so as not to go into unnecessary debt.
5) Consider overpaying the student loan if you are confident that you will end up having to pay it all off eventually and have confidence in your own financial situation.
6) Never get another loan/credit card to pay off your student loan.

I hope this helps in some way.

MarkC84 · 4 July 2017 at 5:34PM

Hi Mogley,
Many thanks for the detailed reply, it has been very helpful!

To answer your questions:
Yes this is correct, a £20.8k student loan balance which I would be able to reduce to £5.8k.

To answer the other points:

1) There is definitely scope for higher earnings. My current role will be as an IT Administrator/Support technician so the £21,000 a year salary is really a base wage for a graduate, however once I pick up some experience this will quickly increase in to the high 20's or low 30's if I find another role after a few years and potentially higher after 5+ years experience.

2) My house will realistically be looking to costing around £120,000, perhaps +/- £5 or £10k on that value depending on what I can afford. Fortunately house prices in this area (North East Wales) are cheap in comparison to other parts of the country so for a small semi-detached house, this is around the going rate.

3) I intend to buy a house as soon as I possibly can. I assume that to be accepted for a mortgage I have to prove that I am earning what I have stated when applying and that I have maintained the job for a minimum amount of time?

4) Once I start the job, after tax I've calculated I'll be taking home roughly £1450 a month. I live quite frugally and bills are relatively inexpensive whilst living here so other than just ordinary living costs I could save a large proportion of this money each month.

Hope this provides further insight.

On the points you've made, I would have to agree with what you've said, particularly as other people I have asked have come to the same conclusion. I think there may have just been a few doubts that I needed to remove from my mind before making the decision.

Cheers,
Mark.

Dobbibill · 6 July 2017 at 7:54AM

Have you seen this article - it's been updated this month.

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

Mogley · 7 July 2017 at 1:31PM

You seem to be money wise and will have self control so I would continue with the points in my general opinion. Use the other boards on the forum to make the most out of your new found income.

Although I graduated in early 2000's. I had the option to pay off student loan or use money for a house deposit (South Wales) soon after I graduated and chose the latter. I graduated in early 2000's. I have not made any overpayments and I'm due to finish paying my loan this year. Over time, you get used to the contributions being made from your salary. However post-2012 interest rates are a different beast so I think more careful consideration is required (which is why you asked the question).

So I would say for the post-2012 student loans, when you live well within your means and have enough savings to satisfy the requirement of not going into debt, consider what the best options are for you at that time. The world of interest rates could be completely different by that time.

infected.1994_ · 9 July 2017 at 7:42PM

I'm in a pretty similar situation to yourself where I've graduated in 2015, currently I owe £25.5k. I'm 23 years old and a building surveyor earning very well for my age (All blessings/thanks be to God - max earning potential of between 45-70k). I can either repay little by little monthly and repay after 28/29 years (with probably 20k interest) or I can try and repay within the next 10 years, so even though I'm spending around 2k a year repaying it doesn't affect my other financial responsibilities or obligations. (Maybe repay 5k interest).

I'll be honest, I was hoping Labour would win the election and my debt would be wiped (hopeful) or they win the election and at least fix our interest rates for the next 30 years (optimistic) but Theresa May won and unfortunately, I have to now consider all these different aspects.

My plan is to repay within 10 years, it seems the most reasonable/middle path. Don't pay too much interest and take it on the chin to pay some. Repaying this debt is obviously of high importance to some of us, but as you said, you want to buy a house too. I would also like to buy a house eventually but I live in London. Hence the 'eventually'.

Mogley · 10 July 2017 at 12:39PM

infected.1994_ wrote: »

I can either repay little by little monthly and repay after 28/29 years (with probably 20k interest) or I can try and repay within the next 10 years, so even though I'm spending around 2k a year repaying it doesn't affect my other financial responsibilities or obligations. (Maybe repay 5k interest).

This is a situation where I think overpayment is a sensible solution. It will not effect your other financial obligations and your earning potential means you will likely pay-of the loan before it is written-off so overpayments negates some of the high interest charged.

The government wins if the high earners continue on their little by little repayment method as the government are effectively banking on high earning graduates subsidising the loans of low earning graduates. If the high earning graduates pay off their loans quickly and the low earning graduates have their loans written-off, there will be an ever increasing government debt for student loans.

amk515 · 10 July 2017 at 12:51PM

Hi all,

Rather than creating yet another thread about this I thought I'd just ask my question here as it's pretty much the same.

I have around £4,500 as a student loan and my salary is currently £17,775. Pay rises are due this month but I don't think I'll get over £21,000 just yet. I'm still studying at the moment but I'm hoping to have it finished by the end of the year so I will then be able to try for more money at that point.

Now, my debt is significantly less than the figures I see quoted around the internet which is why I thought I'd ask the question.

Would I be better paying off this small amount with a 0% credit card and pay towards that? (my credit rating is excellent so no problem moving debt around when needed).

I'm just worried about the interest on the student loan increasing each year while I'm earning below £21,000.

I am currently saving up for a mortgage deposit at the moment though.

Any responses would be great appreciated.

Mogley · 11 July 2017 at 9:32AM

amk515 wrote: »

Would I be better paying off this small amount with a 0% credit card and pay towards that? (my credit rating is excellent so no problem moving debt around when needed).

That is one option but not generally considered wise due to the fact that even though it's 0%, you still have an obligation to pay it back even if you can't afford to. The student loan terms mean that you don't have to pay contributions in those circumstances. The mortgage companies only take into account the student loan for your cost of living where as a credit card is additional committed credit.
My opinion would be similar to that in my previous post.
1) Save and by a house first.
2) Only contribute to the student loan when your salary dictates.
3) Continue to better yourself at work and get a workplace pension (preferably salary sacrificed).
4) Consider paying off the student loan when you are confident in your financial situation that you don't need to go into debt.

Should I pay my student loan off?

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