Pay off Student Loan or Pension Contribution

jonbartfinance

Hi Everyone,

I was looking for some advice.

I'm 32 and in a position to pay off my student loan (Plan 2) of £7800 with a gift or use the gift to make a pension contribution.

Based on my current job/salary (25k) and career plan, I may not pay off the full student loan in the 28 years before it expires.

Which is the best option - pay off student loan or make a pension contribution?

Thanks for your advice.

Jonathan

grumiofoundation

If you are unlikely to pay off the student loan based on salary contributions then paying that off is basically throwing money away.

Therefore of the 2 pension is far better.

Are they the only 2 options?

Do you have an adequate emergency fund?
Do you own a property? If not and you are saving for one the Lifetime ISA may be a good bet.
Might you want access to the money before retirement age?

TheAble

Of course you may be paying 7% interest on that loan in the not too distant future. Not sure I'd fancy that, despite what folks may have once said about it being zero in "real terms" (though interestingly they don't say it so much now!)

silvercar

TheAble said:

Of course you may be paying 7% interest on that loan in the not too distant future. Not sure I'd fancy that, despite what folks may have once said about it being zero in "real terms" (though interestingly they don't say it so much now!)

Interest you will never pay back, so can be ignored, if the salary projections are low.

TheAble

silvercar said:

TheAble said:

Of course you may be paying 7% interest on that loan in the not too distant future. Not sure I'd fancy that, despite what folks may have once said about it being zero in "real terms" (though interestingly they don't say it so much now!)

Interest you will never pay back, so can be ignored, if the salary projections are low.

He's already over the 21k threshold. Presumably doesn't plan to limit his income to 25k for the next 28 years?

grumiofoundation

TheAble said:

silvercar said:

TheAble said:

Of course you may be paying 7% interest on that loan in the not too distant future. Not sure I'd fancy that, despite what folks may have once said about it being zero in "real terms" (though interestingly they don't say it so much now!)

Interest you will never pay back, so can be ignored, if the salary projections are low.

He's already over the 21k threshold. Presumably doesn't plan to limit his income to 25k for the next 28 years?

Need a salary of well above 25k to pay off plan 2 loan in its entirety, sos even assuming pay increases js a good chance they won’t pay off -as the OP says themselves in their first post..

Ed-1

TheAble said:

silvercar said:

TheAble said:

Of course you may be paying 7% interest on that loan in the not too distant future. Not sure I'd fancy that, despite what folks may have once said about it being zero in "real terms" (though interestingly they don't say it so much now!)

Interest you will never pay back, so can be ignored, if the salary projections are low.

He's already over the 21k threshold. Presumably doesn't plan to limit his income to 25k for the next 28 years?

The Plan 2 threshold is currently £27,295, not £21,000. After policy announced on 24th February, it'll be frozen at that level until April 2025 then rise with RPI.