Paying into my pension rather than student loan??

Coldred

Morning.

I have some savings and I am considering paying off my remaining student loan. It's approx 7k at the moment and each month my repayment is about £130. What I am thinking is paying off my student loan and using the money that usually goes to my loan repayment and adding it to my pension repayment. I am unsure if this is financially better long term or better of keeping the 7k in a savings account?

Bravepants

Is there any interest applied to the student loan?

Do you have an emergency fund of say 6 to 12 months' worth of outgoings incase of loss of job or other unexpected expenditure? If not you may be better hanging onto the £7k.


Only start investing once you have an emergency fund and cash to cover any other short term one-off expenses.

Coldred

Yep. The interest is about 1% but would need to check exact figure

rachlikeswinter

Generally speaking it's not that beneficial to pay off your student loan early (especially if it's Plan 1 - do you know which yours is?) as it's more of a tax with a stipulated end date in reality, than a loan.


Instead of paying off your loan and freeing up the £130-odd quid, you could just leave the loan as-is and invest the £7k right now towards your pension. Either by upping your workplace pension monthly to the max you can (and dripfeeding the shortfall in your take home pay back to yourself from your savings, as it were), or open up a S&S ISA, stick it in there and leave it be. A S&S Lifetime ISA might be useful in this scenario as you'll get some free money, too, if you're under 40.


There might be better ways of doing this/other options too, which I'm sure some other more knowledgeable posters can highlight.



As Bravepants says, all this only applies if you have some emergency cash savings already though.

Alexland

Coldred wrote: »

Yep. The interest is about 1% but would need to check exact figure

Yes check this carefully as the rates vary depending on the terms when you took the loan.

Knowing the rate will be important in your decision making.

Do you earn enough to be paying higher rate tax?

Alex

OldBeanz

If you pay the money into your pension through work then the amount may bring your pay down to the level that you do not pay towards your loan.