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Should you get rid of your Student Loan debt early?

By Craig Hore, Editor | February 26th 2020

Who hasn't had a bit of a scare when their Student Loan statement comes through the post? Whether you've seen your repayment schedule for the first time, are a few years into paying it off, or have just received a lump sum of cash, it's worth asking whether you should pay off the debt early.

Most people's instinct is to pay debt off as soon as possible - who wants tens of thousands of pounds hanging over them? But, before you put all your efforts (and hard-earned money) into paying it back, it's worth digging a little deeper.

Most people shouldn't try and pay off their Student Loan early

You probably heard before you went to university that a Student Loan is the 'best' debt you'll ever have - and that is basically true. Here's why:

  • In England, it gets written off after a set number of years:
  1. 30 years if you started uni after 1st September 2012
  2. 25 years if you started between September 2006-2011
  3. When you reach 65 years if you started studying earlier

There are slight differences if you studied in other UK countries, although it's largely the same (unless you're Scottish and studied in Scotland, where universities are fee-free).

  • You only ever pay a small proportion of your salary, and it's taken out of your payslip so you don't have to think about it. It's also rarely more than a few hundred pounds per year.
  • You only ever pay it after you earn a certain amount - and repayment stops if you love your job (but will restart once you're earning a certain amount again)

Even though the student loan seems scary, it's more of a psychological burden than a genuine financial one, since in most cases it won't really affect how you live your life.

Think of it as a tax on people who went to university - and not a particularly big one at that.

Stashing away any windfalls in a high rate savings account means it will likely grow faster than your Student Loan debt over time, so you'd normally make more by saving it.

Should anyone pay off their Student Loan early?

Yes, it might be a good idea to pay off your Student Loan early if you are a high-earner. The way repayments are calculated means that people with big salaries could end up paying more if they leave the debt for longer. However, until you're earning well over 拢50k, it's not something to worry about.

I just received a lump sum - should I pay off my student loan?

Received an inheritance or a bonus at work? If you've avoided the temptation to splurge it all on something fun - well done! You might consider using the lump sum to pay off your Student Loan. Now, everyone's circumstances are different, but in many cases, that's still not the best idea.

  • Imagine you currently owed 拢50k to the Student Loan Company and just received 拢10k through an inheritance.
  • Paying down that lump sum would temporarily reduce your debt to 拢40k, yet unless you suddenly come into a lot more money, the debt will gradually increase over time anyway due to interest.
  • The vast majority of people are not expected to ever entirely pay off their student loans, which means you'd have paid 拢10k servicing a debt that you'll still be paying until the day it gets cancelled.

To put it another way, that 拢10k won't have changed how much you pay each month for years to come - so it's better to do something else with it instead.

Stashing away any windfalls in a high rate savings account means it will likely grow faster than your Student Loan debt over time, so you'd normally make more by saving it.

Pay off other debts first

If you have other debts besides your Student Loan, it's a good idea to prioritise these first - almost all other debts will grow faster than your Student Loan. They're also less forgiving; the Student Loan Company pauses repayments if you lose your job - credit card companies and banks might not be so understanding. (Payments towards your Student Loan will restart though once you're earning a certain amount again.)

So, although Student Loan statements do look scary, they are in fact very manageable - and aren't something to lose sleep over.

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