Plan 2 student loan of only 9k should it be repayed early?

Kate19641111

Hi, my daughter has a student loan on plan 2 of what was originally 9k as she was a midwifery student who was lucky enough to have a bursary and no uni fees.
now she has been paying it back for a few years and looks at her statement, even though she has paid at least 3k back because of interest she has hardly reduced outstanding amount. 

Would she be better off getting a loan and paying this off early?
I have read through all the guides and previous questions but I still don’t understand how to work this out. She earns around £33k basic plus overtime 

aplcomms

Have you checked to see if payment was actually due?

If their taxable income for the year is less than £21,000 (2016-2018), £25,000 (2018-2019), £25,725 (2019-2020), £26,575 (2020-2021), or £27,295 (2021-2022) then all of their Student Loan Deductions can be reclaimed via @SLCRepayments on Facebook Messenger.

Provide copies of P60s or the Annual Tax Summary as evidence of total annual income.

If their taxable income for the year is above the threshold then subtract the threshold from the total pay and then multiply by 0.09.  The answer is the amount of student loan that should have been paid.

Reclaim if she has paid too much.

sheramber

Interest is charged on the loan from the date of the first payment so is accumulating over the years.

So her outstanding loan  will be more than the original £9000

The interest rate charged is explained here 

https://www.gov.uk/repaying-your-student-loan/what-you-pay

On plan 2 you pay 9% of the  amount of salary over the threshold for that year.

Kate19641111

Interest is charged on the loan from the date of the first payment so is accumulating over the years.

So her outstanding loan  will be more than the original £9000

The interest rate charged 

On plan 2 you pay 9% of the  amount of salary over the threshold for that year.

hi yes we understand why little has been paid off as most is interest, but would she be better off taking out a loan to repay it, so that she can get a lower interest rate. Bearing in mind that she will pay off total at some point. Obviously the payments currently come out off wages before tax, whereas a loan would be after tax

sheramber

 interest rate  on Plan 2 loans here  

https://www.gov.uk/government/news/change-to-maximum-plan-2-and-the-plan-3-student-loan-interest-rates

Can she gat a loan at lower interest rates?

jbrassy

Kate19641111 said:

Interest is charged on the loan from the date of the first payment so is accumulating over the years.

So her outstanding loan  will be more than the original £9000

The interest rate charged 

On plan 2 you pay 9% of the  amount of salary over the threshold for that year.

hi yes we understand why little has been paid off as most is interest, but would she be better off taking out a loan to repay it, so that she can get a lower interest rate. Bearing in mind that she will pay off total at some point. Obviously the payments currently come out off wages before tax, whereas a loan would be after tax

I would be careful when deciding whether to do this. The great thing about student loans is you only make repayments if you're employed and the amount you repay is contingent on how much you earn.

The danger is your daughter might lose her job (although I wouldn't wish this on her). In this scenario, she would no longer have to make any repayments to the Student Loan Company if she kept the student loan. However, if she was repaying a bank loan, she would still have to make the repayments or at least negotiate a moratorium with the bank. That is the main concern with switching a student loan for a commercial bank loan.

Perhaps a better way may be for you to repay the loan if you have £9k in savings available. That way, your daughter could repay you on terms that you both agree are fair. This of course requires you to have a degree of trust in your daughter, although I doubt many people would want to deliberately leave their parents out of pocket.