30 year limit on repaying Student Loan Type 2

jaded14

I'm considering fully repaying my type 2 student loan now.

It seems all calculations are essentially based around whether or not I would be likely to pay it off in full before the 30 year point when the debt would be wiped.

As the goal posts on the terms of the 'contract' have been changed already, is it possible (legally) that the 30 year time frame could be lengthened/removed in the future, which might have changed the decision I make after any of the calculations I do now?

Ed-1

https://forums.moneysavingexpert.com/discussion/6654549/30-year-limit-on-repaying-student-loan-type-2

Any of the features of the loan can be changed by Ministers. However only the level of the repayment threshold has changed for existing loans so far. When the cancellation length has been extended, it has only historically affected new loans.

But yes, nothing is guaranteed.

2hc9kmju

https://forums.moneysavingexpert.com/discussion/6654549/30-year-limit-on-repaying-student-loan-type-2

As Ed-1 says the government can change any of the terms of the debt on a whim, as they have done so already for Plan 2 debt, but not other plan debts and as far as i am aware the change only applies to England.

However, whether paying off your debt early is actually beneficial depends on a large number of factors, so of which aren't the things that are normally considered when calculating whether it is worthwhile now…

So anything that would reduce your future income by an amount that is significant enough to mean that you'd have a large element written off could mean that paying it off early will make you worse off in the longer term. Things like career breaks, serious illness, caring for family, parental leave, and many other life changes could mean that you pay off comparatively less of the debt than you expect to.

Also the debt isn't like a normal loan, as you are probably aware, with repayments based on income and the debt being written off after a period of time (in your case as you say 30 years).

Be careful of the online repayment calculators, many of them make assumptions that you may or may not agree with (like rate of salary increase or future RPI) which affect the amount you will repay significantly.

I also did a calculation to see what level of savings I'd need to make to pay off the debt (or at least have enough to pay off the debt should it be come necessary) and interestingly a 5% of salary investment into an ISA annually should be enough to cover your loan value in about 15 years at a growth rate of about 10% and 5% over 20 years. If your student debt gets repaid through loan repayments then you get the lump sum from your investment tax free.

I've managed mine and my wife's Personal Pensions and Stocks and Shares ISAs for about 5 years now and average a 15% P.A. compound return across them all - just by picking well known or larger Shares on the LSE paying a dividend yield of 6% or more. I doubt I'll be able to sustain that in the longer term, but am still confident of having a compund return in excess of 10% over 20 years.

it's not risk free and you may get back less than you put in, but it is an option you may wish to consider.

Just a thought as an alternative to putting money into the debt (which you can't get back)…

Ed-1

https://forums.moneysavingexpert.com/discussion/comment/81898332#Comment_81898332

The terms of Plan 1 loans were regularly changed by the government that introduced them but since some have been sold off, no changes have been made since 2012.

The key changes to Plan 1 were:

Repayment threshold originally £10,000 and linked to earnings growth.

Later increased to £15,000 linked to RPI from 2010.

Threshold then frozen until 2012 and linked to RPI.

Repayment holidays available from 2008 scrapped.