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Should I repay my student loan in full?

I keep seeing advice you shouldn’t repay your UK student loan, “the money is better put to use elsewhere” certainly doesn’t feel like it at the moment! 

I’m on Plan 1 and have £12500 remaining on my loan, I have a fairly decent salary and repay £~550 a month or about ~£6000 a year, more if we get a big bonus.

Via PAYE I have a repayment date of about December 2025 if I do nothing.

I graduated in 2013, after studying starting in 2006.

I have cash to repay it in full and that’s what I want to do to save the 6%+ interest being charged every month

What would you do? 

Comments

  • ajns35
    ajns35 Posts: 4 Newbie
    First Post
    ajns35 said:
    I keep seeing advice you shouldn’t repay your UK student loan, “the money is better put to use elsewhere” certainly doesn’t feel like it at the moment! 

    I’m on Plan 1 and have £12500 remaining on my loan, I have a fairly decent salary and repay £~550 a month or about ~£6000 a year, more if we get a big bonus.

    Via PAYE I have a repayment date of about December 2025 if I do nothing.

    I graduated in 2013, after studying starting in 2006.

    I have cash to repay it in full and that’s what I want to do to save the 6%+ interest being charged every month

    What would you do? 
    Just to add I have no other debts and my mortgage rate is 3% for 10 years 
  • kaMelo
    kaMelo Posts: 2,735 Forumite
    Fifth Anniversary 1,000 Posts Name Dropper
    Whilst the general answer to a question of "should I repay my student loan early" would be no, it comes with caveats as every person has their own individual circumstances and some are more likely to repay their student loan in full than others. To give an idea, repayment lengths can vary from 15 to 44 years depending upon the type of loan and age of student. The amounts owed in student loans range from not very much to a rather eyewatering £189,000.

    The most important thing to remember is that no one knows what will happen in the future. People can have a long term plan with things progressing well but, life has a way of throwing curveballs when they are least expected that can disrupt even the best laid plans.

    With all that in mind I would suggest that anyone with good health and in secure employment who projects they will repay a student loan within the next twelve months, if they have the funds available and they are not needed for anything else like a house deposit, it probably makes sense to pay the loan off early. If it's two years then things become more finely balanced.

    Your circumstances are, you already have a mortgage secured at a decent rate, cash in the bank and no other debts. If you're also enjoy good health and in secure employment then, even with two years repayments left it probably makes sense to consider repaying your student loan early. Only hindsight will tell whether it was the correct choice or not but given your circumstances it seems a small gamble to take.
  • jbrassy
    jbrassy Posts: 933 Forumite
    Seventh Anniversary 500 Posts Name Dropper
    I understand your situation and the temptation to just get rid of the loan. However, there are two benefits to the Plan 1 student loan:
    1) In real terms, its value is always decreasing. This is because the interest rate is set at the lower of the RPI inflation rate, or the Bank of England base rate +1%. Right now, the inflation rate is higher than the loan's interest rate and this should always be true.
    2) If you don't earn any income, you don't pay back the loan. 

    While everything may seem ok today, you may suddenly find yourself being made redundant in 12 months time, or some other event might happen which requires you to dip into savings. In this scenario, you would probably regret paying off your student loan as you would have less savings to live off. That for me is the biggest risk you take by paying off your student loan early.

    Personally, I did not pay back my Plan 1 student loan until I was 6 months away from paying it off anyway. This is because I had greater certainty about the future over a 6 month timescale compared to a 2 year timescale. I was also quite disciplined once it was paid off and put the money I used to pay into a student loan into a savings account instead. 

    If I was in your situation, I would take the same approach. I would keep making the usual PAYE payments for another 18 months. Right now, £12,500 sounds like a lot to take from your savings to pay off a student loan. However, after 18 months, the balance will be a lot lower and paying it off will have significantly less impact on your savings. This would probably be a better time to pay it off. 
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