Should I pay off my (plan 2) student loan?

masterlogarius

I graduated in 2018 and have been working since. My loan started at £36k and is now £51k. I earn roughly £100k/year at present. I have three options I can think of.

1) Pay it off in full. My worry is the plan 2 loan is getting a lot of attention recently for how criminal it is, if I paid it off and then the government decide to improve the repayment terms or even forgive these loans, I will be angry. Is there any chance of this happening?
2) I am self-employed. I could set up a private limited company and pay myself as little as possible to replay as little of the loan as possible. The downsides are the hassle, accountant fees, paperwork and not having access to all my money.
3) Flee the UK. Not really viable as my aging parents are here and my income would be less elsewhere.

Thoughts?

silvercar

1. I doubt it, the government doesn't have spare cash and changes in rules are rarely retrospective. They haven't forgiven any student loans since they were introduced, so there is no precedent for this.
2. You could, but then you have the extra costs and crucially you don't have access to your money.
3. You are still expected to make repayments, even from abroad. So that is a non-starter.

Before you decide to clear the loan, think what else you could do with the money - house deposit, pension contributions...- once used to clear the loan you can never get it back.

badmemory

If that sort of income is going to continue then it is highly likely that you will be one of those who will pay off in full.  In that case the sooner you pay it off the less interest you will pay.

QrizB

With an income of £100k you'll be paying about £6300 a year in student loan repayments.

Your Plan 2 interest rate is 7.3%, which means the annual interest on £51k is £3700. Your payments are larger than this and so you'll be steadily reducing the amount owed.

If your income, your repayment rate and the interest rate remain unchanged, you'll clear the loan completely in 12-13 years.

Do you have £51k available? Is it currently earning less than 7.3%?

Or can you borrow £51k over 12 or fewer years at a rate that's significantly less than 7.3%?

If the answer to either of those questions is "yes", it might be worth paying off your student loan. 

badmemory

I am not sure of my facts here but.  If you are planning on paying off your loan before the end of March 2027 you need to tell the student loan company to stop deductions from pay for the tax year 2026-27 as you will land up overpaying, so you have 2 months.  

silvercar

badmemory said:

I am not sure of my facts here but.  If you are planning on paying off your loan before the end of March 2027 you need to tell the student loan company to stop deductions from pay for the tax year 2026-27 as you will land up overpaying, so you have 2 months.  

Slc generally won’t agree to stop payments until you are in the last 2 years of clearing your loan, calculated on recent deductions. Telling them you plan on paying off your loan won’t wash for obvious reasons. 

ButterCheese

masterlogarius said:

I graduated in 2018 and have been working since. My loan started at £36k and is now £51k. I earn roughly £100k/year at present. I have three options I can think of.

1) Pay it off in full. My worry is the plan 2 loan is getting a lot of attention recently for how criminal it is, if I paid it off and then the government decide to improve the repayment terms or even forgive these loans, I will be angry. Is there any chance of this happening?
2) I am self-employed. I could set up a private limited company and pay myself as little as possible to replay as little of the loan as possible. The downsides are the hassle, accountant fees, paperwork and not having access to all my money.
3) Flee the UK. Not really viable as my aging parents are here and my income would be less elsewhere.

Thoughts?

How much are your monthly repayments?  Being an old duffer, mine were very low, about £60/month.  I still had £2700 to pay off, so when my savings built up to a few grand, I paid it off.  Mentally I'm glad to be shot of it, but financially I sort of wish I hadn't.  But you have to think to yourself, would you need that extra lump some that you've just paid off the loan with?