Student loan

slhqoue

WillPS said:

slhqoue said:

WillPS said:

slhqoue said:

I am not a higher earner, currently earn around £44k. I'm torn as I see the advantage of clearing the 'debt' and gaining approx. £130 a month net pay due to not having the repayments. Yet as many MSE pages suggest, it might be better for me to just accept this debt ...

If you can afford to pay it off, I'd strongly consider instead saving whatever the deposit would be, enjoy the benefits of the interest and take a little comfort knowing you have the money if harder times are hit.

This has been the approach I took a few years back with a balance similar to yours, the money was instead used as a seed fund for a load of regular savers - the blended rate earned has hovered between 5 and 6.5% for me in that time; always comfortably ahead of the interest I've been charged on my student loan.

My loan will clear naturally sometime this summer, and I'm looking forward to being able to fund another regular saver or two out of the extra funds each month.

Thanks Will. I'm interested when you say 'a load of regular savers' - what do you mean by this? I have a First Direct regular saver, saving £300/month at 7%. I also have the Cash ISA which is definitely earning less - around 3.86%. Then I have the Stocks and Shares ISA where the entire balance is invested in two ETFs - which are up 10.78% since July! Though this obviously has the risk that they'll go down in the future.

Yes, just that. My wife and I have that 7% account (it's a very good one), but we also have 45 other regular savings accounts, with interest rates varying between 5.25% and 8%. The blended interest rate across all our regular savers currently stands at 6.8% for us, but that's distorted considerably by two accounts which have high rates, are maximally funded and just awaiting maturity, and a ridiculously generous offer from Monmouthshire BS (unfortunately NLA now).

It's a whole hobby keeping on top of all these accounts and grabbing them when they're available, but if you enjoy squeezing every penny from your savings it's wicked fun.

Wow, I'm impressed! Is this because you prefer the certainty of regular savers to the risks involved in trading? I have to admit I didn't even think there were that many good regular saver accounts available! 

Ed-1

slhqoue said:

Plan 1 is from a three year degree 2003-2006. Plan 2 is from a postgraduate PGDipEd 2015-2016.

Plan 1 lasts until age 65 in that case unless paid off earlier.

Kim_13

You said you are 42, so presumably turning 43 this year and 65 in 2048 (when your Plan 1 loan will wipe.) 

Plan 2 will presumably wipe in 2047 (2015-2016 study would suggest you became eligible to repay it from April 2017.) So there would only be a year between the write off dates.

The Plan 1 loan doesn't feel great, given you have as almost long as later starters ever have to repay for still left on it. But clearing it early isn't going to put much back into your pocket, given the presence of the Plan 2 loan. 

In your case, it isn't worth repaying the Plan 1 loan early unless you also do the same with Plan 2. Plan 1 interest is lower meaning that interest on savings is likely to grow faster than the interest on the loan - short of a return to ultra low rates.

Clearing the Plan 1 loan alone will only mean that you start repaying £2,045 of income later. But this will narrow due to the upcoming threshold freeze for Plan 2, while Plan 1 appears to have escaped such a freeze. 

Everything you repay above the Plan 2 threshold goes to the Plan 2 loan, keeping the interest down as that is also the one charging the highest. But keep an eye on the thresholds as the wording is everything above the cap (set by the difference between the relevant thresholds) goes towards the loan with the highest threshold - so it would work in reverse if the Plan 1 threshold ever overtook the Plan 2 one.

You would be much more likely to repay Plan 2 in full than the average person as most of them start with a higher balance than you would have (from three years of study instead of one.) Only you can make an assessment of your likely job security, which also factors into whether you are likely to repay in full or not (and whether could save money by voluntarily clearing some/all of it early if you cannot match the Plan 2 interest rate on your savings.)

Is your second loan definitely a Plan 2 loan and not a Postgraduate one, as that has a different system and means repayments of 15% once above both thresholds?

DRS1

Student Loan repayment guide 2026 - Save the Student
The above has a bit about repaying early (it does not seem to be a fan of that especially for Plan 2 loans).

slhqoue

Kim_13 said:

You said you are 42, so presumably turning 43 this year and 65 in 2048 (when your Plan 1 loan will wipe.) 

Plan 2 will presumably wipe in 2047 (2015-2016 study would suggest you became eligible to repay it from April 2017.) So there would only be a year between the write off dates.

The Plan 1 loan doesn't feel great, given you have as almost long as later starters ever have to repay for still left on it. But clearing it early isn't going to put much back into your pocket, given the presence of the Plan 2 loan. 

In your case, it isn't worth repaying the Plan 1 loan early unless you also do the same with Plan 2. Plan 1 interest is lower meaning that interest on savings is likely to grow faster than the interest on the loan - short of a return to ultra low rates.

Clearing the Plan 1 loan alone will only mean that you start repaying £2,045 of income later. But this will narrow due to the upcoming threshold freeze for Plan 2, while Plan 1 appears to have escaped such a freeze. 

Everything you repay above the Plan 2 threshold goes to the Plan 2 loan, keeping the interest down as that is also the one charging the highest. But keep an eye on the thresholds as the wording is everything above the cap (set by the difference between the relevant thresholds) goes towards the loan with the highest threshold - so it would work in reverse if the Plan 1 threshold ever overtook the Plan 2 one.

You would be much more likely to repay Plan 2 in full than the average person as most of them start with a higher balance than you would have (from three years of study instead of one.) Only you can make an assessment of your likely job security, which also factors into whether you are likely to repay in full or not (and whether could save money by voluntarily clearing some/all of it early if you cannot match the Plan 2 interest rate on your savings.)

Is your second loan definitely a Plan 2 loan and not a Postgraduate one, as that has a different system and means repayments of 15% once above both thresholds?

Thanks for this really detailed response.

Yes it's definitely a Plan 2 loan not a Postgrad one.