Should I pay off my student loan early?

Ryan_Holden

I respectfully disagree. If you're on course to pay it off in 10 years at the current rate and then the new interest rate means you can still pay it off but it takes 16 years, then it has cost you more.

Tom161992

Thanks all for your comments. I think what is important here is that Ryan_Holden is very much saying in my circumstances it makes sense, but for someone who is unlikely to pay it off at all, then it would not make sense to overpay.

Ryan_Holden said:

I respectfully disagree. If you're on course to pay it off in 10 years at the current rate and then the new interest rate means you can still pay it off but it takes 16 years, then it has cost you more.

kaMelo

But, unlike your situation, ten years is a long time. Whilst someone may have plans for ten or more years going forward, life has a way of throwing curve balls that scupper such plans.

While the maths may be correct it doesn't necessarily mean it was the correct thing to do. Remember no one will ever lose their home over a Plan Type student loan.

Ryan_Holden

10 years was an arbitrary number I threw in as an example.

OP has 2 years of debt left, which is not a lot. And the OPs mortgage will soon rise by roughly the amount paid on Student Loan.

It's a no brainer. Paying off saves interest in the long term and keeps the OPs finances mostly status quo.

kaMelo

For the OP I agree for all the reasons you state. It is a no brainier.

For the arbitrary 10 year example you gave it is not as simple for the reasons I gave.

Ryan_Holden

But doesn't that make your entire argument basically rest on not requiring to pay it back ever? Just keep servicing it and if it's cleared, great, if it isn't, don't worry.

I know that's how the rules work but it's not very socially responsible.

kaMelo

Student loans were never meant to be socially responsible, they were merely a way to shift Government spending off the books. The Government didn't care whether it was repaid or not.

The money loaned was spun out of thin air, Universiies got their fees, the student got their loans to spend, benefitting them and the wider society then any repayments were redirected into the black hole from where the money came. It was Government spending but none of it counted towards any official Government spending figures.

Everyone was a winner

That changed a few years ago when it was pointed out how ridiculous things had become, now the OBR include any new student loans as official Government spending which no doubt focused minds, hence the new Plan 5 loans.

With the 40 year repayment period many more students will repay in full, those that don't will repay much more than they would under Plan 2. The answer to the question " should I repay my student loan early" is much more balanced under Plan 5.

Ryan_Holden

It's up to the individual to be socially responsible. 

If you have a debt to the tax payer, you should work to repay it.

That's my very simple Black and white view.

silvercar

Ryan_Holden said:

It's up to the individual to be socially responsible. 

If you have a debt to the tax payer, you should work to repay it.

That's my very simple Black and white view.

Too simplistic for many reasons. If you pay off your loan, you have less money to spend on  other areas eg making sure you have a decent pension.

Anyway, this is a money saving site.

Also, historically students were always funded from the state as society benefited. Plan 1 loans were relatively small, so graduates made a small contribution justified by their supposed higher earnings and if not by the fact they had had 3 years of fun.

Then (2012) came tuition fee increases and suddenly there was a serious cost to university, enough to make you think, but still low enough that in general it was worth doing. Even if you had a contribution to pay, a bit of extra tax in return for better earnings/ 3 years of fun/ maturing. And structured that those from poorer backgrounds shouldn’t be put off studying. This was mainly necessary due to the high numbers going to university-the money had to come from somewhere. So much so that further degrees were becoming desirable to distinguish those wanting higher academic qualifications. The realisation that without funding some people wouldn’t be able to afford this, in 2016 funding for masters (Plan 3) landed. But that is a big chunk of pay back 9%+6%, so required some thought. 

Now we reach plan 5. People are happy (ish) to pay back for 30 years, those that encourage us all to think of it as a tax not a debt won’t object. Students think that age 30 is ancient, they won’t be bothered at age 18 if their loan is written off when they are 61 instead of 51. 

It’s only the maths nerds/ financially very aware etc that are calculating that more people will end up clearing their loans than before and the tipping point is now about half of students clearing it which suddenly makes the decision on whether to pay up front more interesting. But still life can throw curve balls and it doesn’t take much to knock out plans. Plus money spent on a student loan would be a useful house deposit or pension contribution. 

Ryan_Holden

I know it's a money saving site, but I never thought I'd see the advice of basically don't pay off what you owe, it's someone else's problem. 

I have always paid my debts, I overpaid on my loan to make sure it was repaid early. I guess it's just a different view of the system.