Plan 1 & 2 Student Loan repayments

Seemypack121

Hi,

In summary, I went to university and flunked out after two years. This was back in the day, and I'm paying for this through a Plan 1 repayment. (around £7k left)

I later grew up and went back to university and finished, this time! So I'm now also paying for a Plan 2 repayment. (around £44k left)

I'm not sure if I should be repaying these off in full or more; they both take a good chunk from my salary (I'm not struggling financially), but I'm nervous I could be in the future, and these will still be hanging around, especially when you hear you're paying them, and you'll never actually pay them off...

For both of these, it's around £100 a month from my salary, and this amount could be put to better use.

I've watched Martin's video on repayments, etc., and I'm still unsure... If I pay them off, will future me be happy I did it, or will tomorrow me be really mad as I'm missing out on things or events because I don't have extra cash for them?

silvercar

You need to work out when plan 1 will be written off and see if you will have repaid it all by then or whether some will have been written off:

If you took out the loan before 1 September 2006, your outstanding loan balance plus any interest will be cancelled when you reach the age of 65.

If you took out the loan on or after 1 September 2006 but before 1 September 2012, your outstanding loan balance plus any interest will be cancelled 25 years after the April when you first became due to start making repayments.

The plan 1 threshold is currently £24,990 and the plan 2 threshold is £27,295. So each year only 2,305 x 9% = £207.45 is going towards the plan 1 loan, the remainder to plan 2. Interest is currently 4.3% on plan 1. With £7k outstanding, you are never going to clear the plan 1 loan before it is written off if the loan was after September 2006, so there is no point repaying anything of it. If it is an earlier loan, you need to do the calculation. But my estimate is 33 years from now, without considering the interest.

When that is written off, all your monthly repayments go to plan 2. So the amount you repay won't change. 

If you are nervous of needing the money in the future and you have some savings to pay it off with, you may be better off putting the savings away to spend in the future.