Should I Pay Off My Student Loan? 2008/09 article discussion

sly_dog_jonah

Oldernotwiser wrote: »

Apologies if I'm repeating myself but it's worth pointing out that normal loan repayments are made ofrom gross income whereas extra payments are paid after deductions, making it an expensive way of going about things.

Sorry but that's wrong. PAYE SLC repayments are calculated on your gross salary (9% of everything >£15k) and deducted along with NI and Income Tax.

So if your salary is £16200, you automatically repay 9% of £1200 each year, or 9% of £100 per month, which is £9 each payslip. You still get taxed and NI'd on the full £16200.

Any additional payments you choose to make are also paid out of net earnings.

Lokolo

sly_dog_jonah wrote: »

Sorry but that's wrong. PAYE SLC repayments are calculated on your gross salary (9% of everything >£15k) and deducted along with NI and Income Tax.

So if your salary is £16200, you automatically repay 9% of £1200 each year, or 9% of £100 per month, which is £9 each payslip. You still get taxed and NI'd on the full £16200.

Any additional payments you choose to make are also paid out of net earnings.

I'm sure thats exactly what ONW said....

sly_dog_jonah

Lokolo wrote: »

I'm sure thats exactly what ONW said....

No she said payments are made out of gross earnings (implying you're not taxed on the SLC payments), and that additional payments are more 'expensive'.

Chris2685

Actually, just checked my pay slip and it looks like sly_dog is right, I am being taxed and NI taken from my salary BEFORE the loan payments are deducted, so in fact the loan amount is being taken from my net earnings...

master811

As far as I'm aware extra payments have always come off (along with NI) before tax does, but if this isn't the case, then it's even less reason to make them. Are you absolutely sure they came off after?

Lokolo

According to listentothetaxman they come off out of gross.

http://listentotaxman.com/index.php?c=1&yr=2009&student=1&age=0&add=0&code=647&pension=0&time=1&ingr=17000&vw[]=yr&vw[]=mth&vw[]=wk --- please copy and paste.

I put in £17k, 9% of the £2k is £180 which is what is coming out.

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If it were to come out of net the £15k bracket wouldn't be the bracket because after tax you aren't earning £15k....

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And just so you know, ONW does not have a penis, because ONW is female

argood

As others have (correctly) said student loan repayments are calculated on your gross earnings, as with tax and NI. It's not a case of one following the other, they're both calculated on the same gross amount.

See here -> http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,3867311&_dad=portal&_schema=PORTAL for more details.

sly_dog_jonah

master811 wrote: »

As far as I'm aware extra payments have always come off (along with NI) before tax does, but if this isn't the case, then it's even less reason to make them. Are you absolutely sure they came off after?

Are you referring to repayments made on pre-1998 loans? Most of the above debate relates to PAYE payments made automatically to repay post-1998 loans. These payments are not 'extra'. Any additional voluntary payments are arranged directly with SLC via debti or credit card, and have to be paid out of your net income.

Simondo1979

Hi,

I've read all this thread and it's making good sense. However, I'm just seeking a final bit of clarity.
My loan is now around 20,000 pounds. I understand that there is no rush to make over payments BUT paying the minimum repayment (22 pounds per month) doesn't even cover the interest on the loan, so the total owed will continue to increase.

Should I not worry about that, and just make the minimum repayments, or should I make greater monthly repayments that will actually start reducing the loan?

Thanks!

rb10

Simondo1979 wrote: »

Hi,

I've read all this thread and it's making good sense. However, I'm just seeking a final bit of clarity.
My loan is now around 20,000 pounds. I understand that there is no rush to make over payments BUT paying the minimum repayment (22 pounds per month) doesn't even cover the interest on the loan, so the total owed will continue to increase.

Should I not worry about that, and just make the minimum repayments, or should I make greater monthly repayments that will actually start reducing the loan?

Thanks!

The thing about this is that interest earned from a savings account would generally outstrip the interest accumulating on your loan.

Say, for example, that in one month, you decided to pay off an extra £100 off your loan per month. For pre-1998 loans, the interest rate is currently 3.8% (post-1998 loans have 1.5%). From September the rate will be much lower (yet to be announced, but probably minus 0.4% or 0%).

So as you can generally earn more than these amounts in a good savings account, you'll actually be making money here.

Going back to that £100 per month that you have to pay off your loan, and for simplicity, say that you started doing this last September, with a pre-1998 loan, so you had the same interest rate for a year (this is taking the worst case scenario out of the possible options, as it's the highest interest rate).

In a year, this £100 per month would shrink the size of the interest accumulating on your loan by around £25.

BUT ... if you put this same £100 into a Regular Savings account (currently the highest is Barclays at 6%), then you would earn nearly £40 on this money in interest.

So this leaves you better off by £15. Hence, provided you are careful with where you save the money (and disciplined! make sure it stays in savings!), you won't be worse off.

Additionally, you have the benefit of having that money there - at no real cost to yourself - should you need it, e.g. if you were made redundant. It saves you relying on expensive overdrafts / credit cards etc.

But, over the coming year, the difference will be even more marked - in your favour. As it's 99% likely that between Sept '09 and Aug '10 no interest will be accumulating on your loan, the interest that you can get from savings will all be profit in your pocket.

Hope that helps.