If Martin says there is no reason to overpay student loans, what's the big deal with increased rates

IAMIAM
IAMIAM Posts: 1,189
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edited 13 January 2023 at 4:19PM in Student MoneySaving
Whether 12% or 5%? what's the big deal....

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  • It's only a big deal if you're set to pay it off. 
  • silvercar
    silvercar Posts: 46,772
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    Given for a lot of students it eventually gets written off, it’s more of a graduate tax, so the notional interest rate won’t matter.

    However, this view has been common since tuition fee loans started in September 1989. Now that we have high inflation if this leads to wage inflation then those loans will start to be cleared by more than we thought at the time, leading to more ex students getting to the point where the interest rates will make a difference. 
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  • DrEskimo
    DrEskimo Posts: 2,334
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    He only suggests not overpaying if it’s unlikely you will repay the full loan back. 

    For those that do earn sufficient amounts to repay the loan in full, it clearly will increase the total amount paid. 
  • artyboy
    artyboy Posts: 822
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    I understand Martin's logic here in that a lot of loans are never paid off, but both of my kids are studying (or want to study) subjects that ordinarily would lead to well paid careers. And as I have the means to do so, I'm fully funding them because I have no desire to see them paying a high interest loan off for many years to come...
  • silvercar
    silvercar Posts: 46,772
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    artyboy said:
    I understand Martin's logic here in that a lot of loans are never paid off, but both of my kids are studying (or want to study) subjects that ordinarily would lead to well paid careers. And as I have the means to do so, I'm fully funding them because I have no desire to see them paying a high interest loan off for many years to come...
    You may be in a position to do both, but there is an argument that funding a deposit for their first home may be beneficial in the long run.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, mortgages and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
  • silvercar
    silvercar Posts: 46,772
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    DrEskimo said:
    He only suggests not overpaying if it’s unlikely you will repay the full loan back. 

    For those that do earn sufficient amounts to repay the loan in full, it clearly will increase the total amount paid. 
    I agree, but the point I was making was that initially it may appear that they are not going to pay back all the loan and so it isn’t worth paying it for them. Then along comes (wage) inflation and suddenly it looks like paying them off would have been worthwhile.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, mortgages and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
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