Student debt panic - accumulating interest despite salary sacrifice

Gin_and_Milk

Hi, wondering if someone can help?
Between 2013 - 2017 I started a part time degree with the OU.  I didn't complete it, but did take out student loans to cover fees.  In 2019, I got a job with more money, made a few repayments, then not long after that, my employer introduced the AVC pension scheme at work.  I'm 48 and looking to retire at 60, so I've taken advantage of this and effectively lowered my salary.  In December, I got backpay, and some money towards my student loan was deducted.  I mention this as I had completely forgotten about the loan by this point.
I'm due to move up a grade later this year, and last month's repayment got me thinking that rather than top up my AVC, I should start paying off my loan.  I've just checked my paperwork, and although I initially owed approx £8k when I dropped out of the course, I now owe £12.7k due to interest?
Does this sound right?  I'm on plan 2, and didn't realise that being under the earnings threshold meant that you would still accrue interest on what you owed.  I thought that all started once you had crossed that threshold.
Any advice gratefully received as I need to pay all of this back before I retire it would seem?

_Dolly_Rocker_

You pay interest from the day you receive the loan or the loan is pay to the OU on your behalf. 

They do get written off but with the Plan 2 it is 30 years after you were due to repay them I am sure. 

Depending on what you earn it is very unlikely that you will ever pay the balance in full so I wouldn't bother with any additional repayments towards it. 

Gin_and_Milk

Hi,
Yes you are right about it being 30 years on plan 2.  Because I was a mature student, that means it wouldn't be written off until I was in my 70s.  Currently the threshold to pay back is around 27K, and whilst my pension forecast isn't that much, the amount could change, or, worse still, they could lower the threshold.  
My concern is I will have a large debt to pay off when retired, which will be more than it is now because of the accumulating interest.
On the other hand, the amount is relative to my income, so if I am over the threshold when I retire, I can start paying it back then and it should be a manageable amount.
As you can probably tell, I'm a bit panicky when it comes to stuff like this.  I know I don't have to worry about bailiffs and CCJs etc, but stuff like this makes me really nervous!

TheAble

It's actually quite a tricky conundrum. You can either pay it back now while it's still manageable, or let it grow to the point where it's too large to be paid back and it essentially becomes a stick for the government to beat you with in perpetuity via frozen/reduced thresholds, increased contributions etc . This latter alternative may end up being the more costly one in the long run, as well as being a bit demotivating.

Were it me I would get it paid off but you know your own circumstances best.

Gin_and_Milk

This is the bit that has me worried. I'm thinking of setting up a direct debit of perhaps £50 a month which I can manage, and that at least will cover the interest and a little more. Next week is payday and it will be my first wage since my rise which was backdated last year. If it comes out of that I'll leave it and probably not top up my pension 

london21

Paid mine off after 10 years in 2021.

You either pay it back or it reaches the date when it does not need to be paid back.

What helped me was getting a better paid role.

Gin_and_Milk

Was that plan 2?
I'll be in my 70s when I reach the 30 year write off period (assuming they don't change it).
It's the accumulating interest that's racking it up. Even if I just pay that every month I'll keep costs down.
The frustrating thing is, I couldn't complete my degree, so all I have to show for it is debt

Van_Girl

Is your income in retirement likely to be particularly high? If not, I wouldn't worry too much about paying it off.

Personally, I think it's unlikely that I will pay mine off (plan 1 and postgrad). My income is good, but I use salary sacrifice to put a hefty chunk into my pension, as I was a late starter with that. When my pension is at a figure I'm happy with, I ultimately only intend to work part time, so won't pay much off my student loan before retirement. My retirement is likely to be frugal, but manageable. So I'll just wait it out until the loans are written off in my mid 60's

I can't see massive retrospective changes being made to repayments, though I appreciate the frozen thresholds might start becoming a problem if continued. But even then, I don't think you'd see much of a deduction from retirement income, realistically 

Just my thoughts

sunshine_raincloud

Hello. Have you looked at Martin's article on student loans?

https://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/

Remember you only pay a percentage of your income that is above the 27 K threshold (or whatever it is at the minute) and most people won't repay in their lifetime. I personally would not make any overpayments if realistically you won't be paying the whole thing off anyway, which it doesn't sound like you will be but you need to do the sums. Overpayments are only useful if you will eventually be paying the whole loan off anyway, as it reduces your interest in the long run. I'd just leave it and not give them any more money than you have to, save for your retirement instead! The changes the government are introducing won't be applied retrospectively but just to new students starting this year from what I have read. 

Thanks 

london21

Gin_and_Milk said:

Was that plan 2?
I'll be in my 70s when I reach the 30 year write off period (assuming they don't change it).
It's the accumulating interest that's racking it up. Even if I just pay that every month I'll keep costs down.
The frustrating thing is, I couldn't complete my degree, so all I have to show for it is debt

Mine was plan 1.

Because you didn't complete the course can affect the motivation to pay it off also but it's not like a bank loan.

They will only take based on your income. If you aren't earning much then won't pay back much.

Not much you can do about the interest, if you have you can overpay but only do so if you really want to as they won't refund if you change your mind. 

Gin_and_Milk

My pension forecast was £19000 last year.  It will go up this year because of my pay rise (only small), and then for the next couple of years after that once my job has been regraded.  That's assuming there are no promotions etc.  As it stands I don't think I'll hit the £27000+ anytime soon, and whilst I do expect that I will probably cross the threshold at some point, I won't be paying very much.
I would prefer to put the money towards my retirement.  Because it's an add on to my work's pension, it's an investment where I may walk away with less that I put in.
Thanks for the link - very informative and reassuring.  I'm not panicking now - just wish I could make my bl**dy mind up, but I'm leaning towards leaving it.