If Martin says there is no reason to overpay student loans, what's the big deal with increased rates 7 January at 9:48PM edited 13 January at 4:19PM in Student MoneySaving 6 replies 266 views

IAMIAM

Whether 12% or 5%? what's the big deal....

MorningcoffeeIV

It's only a big deal if you're set to pay it off. 

silvercar

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. 

DrEskimo

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

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

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.

silvercar

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.