Help: Checking my calculations before paying Student Loan

PennyPiggy

Hi Money Saving Forumers,

Appreciate that the decision to repay student loans isn't an exact science with the possibility of interest rates rising/falling, salary adjustments, a new government body possibility wiping student loans permanently (although extremely unlikely!) etc - but I would really appreciate thoughts on my intentions to pay off my remaining student loan.

I graduated in 2016 (started in 2012 so Plan B ) and to date my outstanding loan is: £25,598.83

I'm in the fortunate situation where I'm able to clear this and do not need the funds for any large purchases. I own my own property and currently earn £62,000 base. I've never made a voluntary payment to the Student Loan Company.

After reading Martin's advice, multiple other blogs, using multiple online calculators and discussions with Student Loans Company, it seems that doing absolutely nothing (assuming that the variables previously mentioned stay the same) the loan will be automatically paid off within 5 - 6 years. By paying the loan off today, it would save me around £5,000 due to the added interest that would occur during this time frame.

I wanted to double check that my calculations were correct and understand other member's thoughts on my intentions. Am I right in assuming that as I'm extremely likely to pay it off before 2046 (when the loan would be wiped due to the 30 year rule) I should pay it off now given that I don't require the money for other purchases and can avoid the added interest incurred by sitting still and letting it automatically get paid?

Greatly appreciate everyone's thoughts on this

silvercar

Putting your numbers into https://www.student-loan-calculator.co.uk/ suggests you will pay it off in 9 years having paid interest of £7,300.

I can see your logic, though there are some who would advise you to pay into a pension first.

PennyPiggy

Appreciate your thoughts @silvercar thank you. Believe that the student loan calculator is a 'worse case' scenario, the interest rate that the website uses is 5.4% not 4.5% which seems to be the frozen rate until 2025 - I'm assuming the website hasn't been updated unfortunately!

Ed-1

PennyPiggy said:

Appreciate your thoughts @silvercar thank you. Believe that the student loan calculator is a 'worse case' scenario, the interest rate that the website uses is 5.4% not 4.5% which seems to be the frozen rate until 2025 - I'm assuming the website hasn't been updated unfortunately!

The interest rate changes annually based on the prior March RPI but is capped at prevailing market rates. RPI will be 8%+ for March 2022 given the current runaway inflation so the interest rate on Plan 2 loans from September 2022 could be 8%+ to 11%+ but prevailing market rates are likely to cap this at a lower level.