Repay student loan early?

slhqoue

Hi there,

I owe money on two separate plans.

On Plan 1 I owe c.£7000, charged interest of 1.25% from my original undergraduate degree.

On Plan 2, I owe c.£14395, mainly due to a PGCE tuition fee loan of £9000 plus maintenance loan of c.£4500. This is charged at 4.6% interest (which will rise to 6.1% in September).

I'm wondering whether I should use savings or family help to attempt to pay off Plan 2, or just accept that I'm going to pay approximately £50 a month paying off student debt for the next 30 years.

I'm saving for a house, and have the fortunate option of family help for a deposit. Is it better to save this family help for the deposit, or in the big picture would it make more sense to pay off the extortionate Plan 2 interest-accruing debt?

Sorry if I've posted in the wrong place. I'd really appreciate any help you can provide.

chockydavid1983

Over to you Martin :-)
http://www.bbc.co.uk/news/av/business-40563151/martin-lewis-looks-at-student-finance

slhqoue

Thanks for the link! Really helpful. One point, Martin mentions that the vast majority of people won't pay the 6.1% from September. Unfortunately, if your debt is from a postgraduate course (mine is from a PGCE in Secondary Education), you go straight onto this rate!

george4064

chockydavid1983 wrote: »

Over to you Martin :-)
http://www.bbc.co.uk/news/av/business-40563151/martin-lewis-looks-at-student-finance

Great article, thanks for sharing!

Ed-1

slhqoue wrote: »

Thanks for the link! Really helpful. One point, Martin mentions that the vast majority of people won't pay the 6.1% from September. Unfortunately, if your debt is from a postgraduate course (mine is from a PGCE in Secondary Education), you go straight onto this rate!

He's talking about 'paying' the interest, not 'accruing' the interest. Those with massive plan 2 loan balances won't pay any interest on modest salaries even though they 'accrue' the RPI plus up to 3% onto their loan balance.

With smaller loan balances it's different. The plan 1 loan (assuming it was taken after 2006) gets wiped after 25 years. The plan 2 loan gets wiped after 30 years. So clearing the plan 2 before 25 years is beneficial as repayments then stop after 25 years from the April after the first course finished, rather than 30 years from the April after the second course finished.

You repay 9% of earnings above £17,775 (rising to £18,330 in April 2018) and anything from earnings up to £21,000 goes to the plan 1 balance. Anything from earnings above £21,000 goes to the plan 2 balance. So the lower the plan 2 balance the better as more repayments go to that balance! You need to hope they don't the plan 2 threshold up...

You may find the analysis that the Government used that was behind the decision to set the policy up this way interesting:
https://www.whatdotheyknow.com/request/230088/response/579884/attach/4/Annex%202%20Submission%20Dual%20loan%20repayments.pdf

Equally interesting:

https://www.whatdotheyknow.com/request/353572/response/967020/attach/3/Annex%20A%20Repayment%20Threshold%20Redacted%20FOI.pdf

https://www.whatdotheyknow.com/request/353572/response/939043/attach/5/Gibney%2020936%20Annex%20B.pdf

slhqoue

But there are different rules for those with Plan 2 loans from undergraduate courses, where the interest accrued is linked to salary, versus postgraduate courses, where the interest accrued is always RPI+3%, right?

Ed-1

slhqoue wrote: »

But there are different rules for those with Plan 2 loans from undergraduate courses, where the interest accrued is linked to salary, versus postgraduate courses, where the interest accrued is always RPI+3%, right?

Although a PGCE is a postgraduate course, it's not a postgraduate loan - it's a plan 2 loan so has RPI + 0-3% interest.

Postgraduate loans are for masters and doctoral courses.

atush

With interest racking up at 6.1%, I would pay this one off.

slhqoue

Although a PGCE is a postgraduate course, it's not a postgraduate loan - it's a plan 2 loan so has RPI + 0-3% interest. Postgraduate loans are for masters and doctoral courses.

Thanks for this, really useful. I just phoned up the Student Loans Company, interesting to find out what's happened. Basically, while studying I do (as expected) pay the full amount of RPI+3%. Once you finish studying you are put onto the means-tested amount of RPI+a variable amount depending on your salary.

HOWEVER - this change will only come into effect in the next tax year. I finished studying in June 2016. Despite this, I have been paying RPI+3% all the way up to and including March 2017. 'This is the policy' apparently.

Mystery solved at least.

slhqoue

One more question. The website states:

Variable rate dependent upon income. RPI (1.6%) where income is £21,000 or less, rising on a sliding scale up to RPI plus 3% (4.6%) where income is £41,000 or more

Does anyone know how to calculate where on this 'sliding scale' you are with any given salary? I can't seem to find an online calculator anywhere!

Ed-1

slhqoue wrote: »

Thanks for this, really useful. I just phoned up the Student Loans Company, interesting to find out what's happened. Basically, while studying I do (as expected) pay the full amount of RPI+3%. Once you finish studying you are put onto the means-tested amount of RPI+a variable amount depending on your salary.

HOWEVER - this change will only come into effect in the next tax year. I finished studying in June 2016. Despite this, I have been paying RPI+3% all the way up to and including March 2017. 'This is the policy' apparently.

Mystery solved at least.

Correct - that's the policy. If you're interested in how it developed, there's these FOI releases:

https://www.whatdotheyknow.com/request/350870/response/939041/attach/5/paper%202%2020769.pdf
https://www.whatdotheyknow.com/request/350870/response/939041/attach/6/paper%204%2020769.pdf
https://www.whatdotheyknow.com/request/350870/response/939041/attach/7/paper%203%2020769.pdf

slhqoue wrote: »

One more question. The website states:

Variable rate dependent upon income. RPI (1.6%) where income is £21,000 or less, rising on a sliding scale up to RPI plus 3% (4.6%) where income is £41,000 or more

Does anyone know how to calculate where on this 'sliding scale' you are with any given salary? I can't seem to find an online calculator anywhere!

It's just basic maths:

The extra % on top of RPI is calculated as follows:

3 x amount of income over the £21,000 threshold up to £41,000
divided by
difference between the thresholds (£41,000 - £21,000)

e.g. Income £31,000: (3 x 10,000)/20,000 = 30,000/20,000 = 1.5% (+RPI)
e.g. Income £27,000: (3 x 6,000)/20,000 = 18,000/20,000 = 0.9% (+RPI)