Should my daughter pay off loan after ditching uni

Crystal_cleaner_

My daughter has just completed her first year at UCL and has taken out both Tuition Fee and Maintenance Loans through Student Finance England. She has decided not to return to university and is instead planning to start an employer-funded apprenticeship closer to home.

As things stand, she’ll leave university with around £20,000 of student loan debt.

I’ve often read that it’s usually better not to repay a student loan early and instead use any spare money towards things like a house deposit, savings or investments. However, because she’s only studied for one year and her debt is relatively modest compared with many graduates, I’m wondering whether this advice still applies.

If she starts earning above the repayment threshold during her apprenticeship, should she simply let the repayments come out of her salary over time, even though interest will continue to accrue? Or, if she has the means to do so, would paying the loan off in full (or making voluntary overpayments) save her money in the long run?

I’d really appreciate any advice from people who understand the Student Finance system or have been in a similar situation. Which option is likely to leave her better off financially over her lifetime, and what factors should we be considering before making a decision?

Many thanks

Glad

The answer depends largely on how much she's likely to earn over her working life and which repayment plan she's on.

In general, the usual advice is not to make voluntary repayments unless you're fairly confident you'll repay the loan in full anyway. For many people, student loans are more like an additional tax than a conventional debt, and any remaining balance is eventually written off.

However, because she's only completed one year, her balance is much lower than many graduates. If she's likely to have a well-paid career through the apprenticeship and would then repay the loan in full, clearing it early or making overpayments could save interest.

I'd be inclined to let the automatic repayments come out of her salary for now. Once she's settled into her career and has a better idea of her earnings, she can always review whether voluntary repayments make financial sense.

Hopefully someone who understands the repayment calculations better than I do will be along soon, but I'd certainly avoid rushing into paying it off until you've looked at the numbers.

ButterCheese

It might not be much compared to graduates, but £20k is still a huge amount of money. There are two ways of looking at it - pay it off quickly thus saving money on the interest you'd pay back over x amount of years. Or just suck it up and look at it as a "went to Uni tax" and use that money for other important things. Only your daughter can decide really. I was on plan 1 (1999) and my debt was only about £9k. The threshold is now £2241/month, but when I started work it was a lot lower, so I was paying back I think around £12/month. When I got promoted, IIRC the most I was paying back a month was ~£25/month. I was still paying it off in 2018, and it had become a bit depressing to see money coming out each month but the balance not coming down much.

So I made the decision to use my savings and pay off the remaining £2800. It was a big mental weight of my shoulders, but again it depends on how your daughter sees it. It would be a shame to pay it off and then not have enough money for a house deposit for example.

So it's more a decision based on feelings than facts and figures I'm afraid

Exodi

The terms depend on the repayment 'plan' the student is on, which is usually dictated by when and what they studied. I expect your daughter is on a 'Plan 5' student loan, but she should confirm by signing into her online account to check: https://www.gov.uk/sign-in-to-manage-your-student-loan-balance

Assuming your daughter is on a Plan 5, she'll start repaying on any income in excess of £25,000 per year (fixed until April 2027 where the threshold should rise in line with inflation). She will pay 9% on anything above this income, automatically deducted from her pay.

The interest charged on Plan 5 is based on RPI, set in September based on the previous March.

Currently the rate is 3.2% (based on RPI for March 2025), and will be increased to 4.1% (based on RPI for March 2026) on 1st September.

Due to global events in the last few years, RPI has been unusually high, peaking at 8% 2 years ago but has come down since.

Unlike its predecessors, a Plan 5 student loan is written off 40 years after you were first due to repay.

With all that in mind, a decision on whether to repay should be based on two things (in my opinion):

Firstly, and usually the main reason people talk about, is if there is the prospect of part of the loan being written off. If so it usually doesn't make sense to overpay.

The average RPI rate over the past 40 years has been a little under 4%. This means that to pay it off exactly when it is due to expire (assuming 4% constant RPI), your daughter would need to be paying £84 towards it a month. As the rate of repayment is 9%, this means she'd need to be earning £933.33 over the threshold to repay it in full, based on todays numbers.

Now no-one can give you a concrete answer without a crystal ball telling us her future earnings for the next 40 years, but you can see she doesn't need to earn much over the threshold to repay it in full (likely due to the combination of a small balance and the longer write off date). It's also worth noting that this is less than minimum wage, so I'd probably make an assumption she will repay it in full, unless she anticipates earning less than minimum wage throughout her working life.

So onto the second consideration - is it worth overpaying? In my household we have chosen not to, despite it almost certainly repaying it in full. The reason for this is we invest our surplus income, and the rate of return on our investments has been significantly higher than RPI (over 3x by my calculations).

Of course, some people opt to repay it for emotional reasons, which is valid and if applicable should be considered (though to be honest, I'm a mathematician at heart, I wouldn't personally recommend someone overpays a student loan or mortgage, but different things matter to different people).