Student Loan - should I pay it off?

aivlys

Hi there, 
I think I know the answer to this but looking for some reassurance!
I graduated in 2009 and so have a 'Plan 1' student loan, with a 6.25% interest rate as I type.
I have a small child and have not returned to work after maternity leave and so am not earning, or paying off my student loan through PAYE for at least the next few months.
I have enough in savings to pay off the remainder of my loan in one lump sum.  I know that the advice is usually not to pay back early but - while I'm not working, the total amount I owe is increasing each month and I cannot find a savings account that would earn me more in savings interest than the amount my loan is increasing by each month.
Am I right in thinking I'm better of paying off the loan now rather than letting the balance increase while I'm not working?
Any advice gratefully received.

DullGreyGuy

In theory it depends if you intend to return to work or not? 

If that's you done working for good then there is an argument that there is no reason to pay it off given it gets written off after 65th birthday or 25 years, depending on when you took it out. If you will be going back to work materially before then then yes I;d want to save the interest

aivlys

Thanks for the speedy reply.  I am planning to return to work, not for a few months but definitely before the loan would get written off. Thanks again.

Kat78MFW

Will you be going back to work full time? Do you plan to have further mat leave or career breaks in the future? If you are likely to pay off your loan in full via PAYE before it wipes, then it's probably best to pay off now from savings. But make sure you keep sufficient savings as an emergency fund as you cannot get back voluntary loan overpayment if you need the money in the future. 

DigSunPap

Does anybody really ever pay off their student loan?

Barkin

DullGreyGuy said:

OIf you will be going back to work materially before then then yes I;d want to save the interest

It's not that simple. If work & earnings situation is such that it'll never be repaid in full, then it really doesn't matter how much interest is added. You'd still pay x% of earnings over £nn until the 25yrs is up regardless of the interest "added". 

silvercar

I’ll ask the forum team to move this to the student board.

[Deleted User]

DigSunPap said:

Does anybody really ever pay off their student loan?

Seriously ? You/someone borrows money, but you/someone doesn't want to pay it back ?
If every borrower went through life like that we'd all be in a bad financial mess ...... oh wait ......

silvercar

[Deleted User] said:

DigSunPap said:

Does anybody really ever pay off their student loan?

Seriously ? You/someone borrows money, but you/someone doesn't want to pay it back ?
If every borrower went through life like that we'd all be in a bad financial mess ...... oh wait ......

Student loans are slightly different, think of them as a graduate tax. They come from the government and the calculations factor in that not everyone will clear them. The whole point is that those considering university aren’t put off by the loan size and so have the knowledge that they will be wiped if not cleared, not feature in credit checks etc

Barkin

[Deleted User] said:

DigSunPap said:

Does anybody really ever pay off their student loan?

Seriously ? You/someone borrows money, but you/someone doesn't want to pay it back ?

No. Student loans don't work like a normal loan.
The agreement is that when/if earnings exceed a prescribed amount, then a percentage of earnings above that amount go towards repaying the loan. After a predetermined time, the loan is wiped, regardless of how much may still be outstanding. 

DigSunPap

[Deleted User] said:

DigSunPap said:

Does anybody really ever pay off their student loan?

Seriously ? You/someone borrows money, but you/someone doesn't want to pay it back ?
If every borrower went through life like that we'd all be in a bad financial mess ...... oh wait ......

It just comes out of my payslip each month. I barely notice it.