Should I pay off my student loan early?

Tom161992

Hi All,

I currently have about 2 years left on a plan 1 student loan, and that's assuming that the interest rate climbs to 6.5% (base rate + 1%) and never comes back down.

In November my current low fixed rate mortgage ends, and i'll be moving onto a much higher rate (c.5%), potentially costing about £400 per month more (which is about the same as I pay in student loan per month). 

I have no other debts.

My question is if I should be thinking about paying off this student loan sooner whilst i'm on a low mortgage rate, which would then free up some additional cash to cover the increase in mortgage payment?

Thanks all for your help!

T

Ryan_Holden

Howdy, bit of a no brainer isn't it? 

It's always advisable to pay down debt as soon as you can, and in your case if you clear the SL and it happens to be the same amount as the mortgage will be then you're net even and not down another 400 quid a month.

Good on you for having no other debts.

MSE_ForumTeam5

We've moved this to the Student MoneySaving board

silvercar

If you will definitely clear the student loan in the next few years then it is worth thinking of clearing it now to save paying the interest and free up cash. Before you do that I would think about how much savings you have now and whether you should bolster that before paying off the student debt. 

grumiofoundation

Ryan_Holden said:

Howdy, bit of a no brainer isn't it? 

It's always advisable to pay down debt as soon as you can, and in your case if you clear the SL and it happens to be the same amount as the mortgage will be then you're net even and not down another 400 quid a month.

Good on you for having no other debts.

This is far too simplistic

Particularly when applied to student loans.


(appreciate in this case paying off is the sensible idea but your statement is far too sweeping)

Ryan_Holden

It isn't really though is it? Because unless I'm mistaken their loan is just going to get more and more expensive to service.

silvercar

Ryan_Holden said:

It isn't really though is it? Because unless I'm mistaken their loan is just going to get more and more expensive to service.

Student loan repayments are fixed according to income, irrespective of loan amount. 

Ryan_Holden

But the interest rate isn't.

silvercar

Ryan_Holden said:

But the interest rate isn't.

But the repayments are fixed. So the only thing that can change is the length of the outstanding loan, that will be effected by interest rates. For anyone that won't repay the loan in full (over half of students on earlier plans and forecast to be about 46% on plan 5) paying down the debt is throwing money away. So saying it is always worth paying off debt is wrong and saying that it becomes more expensive to service is also wrong, as repayments are fixed.

Ryan_Holden

I still don't see why you think you're making sense.

When the interest rate increases, the loan will become more expensive. The OP won't pay more per month, but they will pay less down on the balance which makes it more expensive.

If they have a debt that they can clear before it becomes more expensive, then it is good practice to do that.

Ah, I see the confusion, I said more expensive to service. I didn't mean to add 'to service', I should have just said more expensive.

Ed-1

Ryan_Holden said:

I still don't see why you think you're making sense.

When the interest rate increases, the loan will become more expensive. The OP won't pay more per month, but they will pay less down on the balance which makes it more expensive.

If they have a debt that they can clear before it becomes more expensive, then it is good practice to do that.

Ah, I see the confusion, I said more expensive to service. I didn't mean to add 'to service', I should have just said more expensive.

Student loans don't have to be paid off in full though. They're cancelled after a certain period. So the interest rate doesn't determine the cost.