Should You Pay Off Your Student Loan
*This is a collaborative post on should you pay off your student loan
A whole generation of people has been saddled with debts in the form of student loans. Companies like SoFi and many more aim to help those struggling with these loans and put them in the right direction of paying it back or refinancing. That’s millions of people who are probably asking ‘should you pay off your student loan?’ I went to university in 2008 and was lucky to be part of the generation who didn’t see it rise to £12,000 a year study fees. When I finished my degree I had 3 years of loans for my degree itself and just one year of maintenance loan. Living at home and working throughout meant I didn’t need to. I only took the loan out in the final year as I thought ‘F**k it’.
When I graduated in the summer of 2012 with a degree in Creative Writing I didn’t think much of the debt I’d be in. A year later before interest started to kick in I paid back my whole loan from some money that had been left to me via inheritance and money I made through a share save. I thought I’d done the best thing I could for my situation. I’d never had to pay it back. But it’s one of the biggest regrets I have.
How you begin to pay off your student loan
I’m only going to talk about people who started university between 1998 and 2011 as things were different either side of this. The loans from the Student Loans Company are income-contingent. Meaning you only start paying it back if you earn over £19,390. So when you’re interning or on grad roles and earning pennies you can have some breathing space.
If you’re employed the money simply comes out of your pay as your tax does. If you’re self-employed then you can make these payments when you do your self-assessment each year.
According to Money Saving Expert, the interest is set at the lower of the following “Either: The Bank of England base rate, plus 1% or the rate of inflation.” The later is fixed for a whole year from September and you pay 9% of everything you earn over £19,390 a year. If you earn £25,000 a year you’ll pay back £504. And if you earn £30,000 a year it’s £955. Compared to the amount you borrowed this is nothing.
The interest amount is minimal compared to other forms of debt like a mortgage, credit card or loan. So even if you have spare cash you’re far better off clearing other debts first. And even if you have no other debt you’ll probably make more money-saving in a bond or ISA than what you’d save in interest.
Should you pay off your student loan?
Having a student loan has no impact on your credit score and it won’t be included on your credit report. When applying for something like a mortgage you may be asked if you’re paying it. But it won’t impact your ability to get credit which means you won’t be penalised. When I paid mine off I was under the impression it would negatively impact me when I wanted to buy a house. It serves me right for not seeking advice before paying it off.
Student loans also only have a fixed life. If you’re under 40 then your debt will be wiped after 25 years. And if you’re under 40 it will be wiped when you hit 60 or 65. Depending on the year you started paying it off.
As I said above I regret paying mine off as I could have used that money (approx £12,000) for better things. I could have put a larger deposit down on my first flat, or invested the money. I probably wouldn’t even notice that I was paying such a small amount per month. Refinancing your student loans is a better option, and you can compare student loan refinance rates to determine which is best for you.
If you went to uni pre 1998 or post 2012 the decision whether you should pay off your student loan may be different. But if you’re like me then don’t worry too much about it!
Have you got a student loan? Have you ever thought about paying it off?
16 responses to “Should You Pay Off Your Student Loan”
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I am in the same bracket for when I went to uni and I haven’t paid mine off at all – mainly because I have worked part time since and not met the threshold – I had no idea that they could be wiped off though!
A lot of people don’t end up paying off their loan because you have to earn quite a bit in order to do that x
I don’t have a student loan but I totally get why you regret it now as you could have used the money for something else. I think it is a totally personal matter, some can’t wait to get rid whilst others are happy to continue paying it monthly.
It was amazing that you have managed to pay off your student loan in record time as I know so many out there who have not. That being said you could have used that money for something else and then slowly paid it since it does not affect your credit score
I think that’s why money guidance is so important to give to students and young adults to give them the chance to properly understand these things before they make decisions. I definitely wasn’t educated enough to make a decision x
I think student loans should be paid either in monthly repayments or in the form of service. We don’t have that kind of financial help here in my country. Sending children through college is either parent-funded or self-funded. My cousin who lives in another country paid off his student loan through service with the government.
I like the idea of being able to work off your student loan. Most students do pay monthly repayments for their loans through their working income x
I didn’t study in UK (now I do, but my situation is different) and, as it was the situation at that point in my country, loans for study were not available (most students paid for university though). I think the student loan, as it is in UK, it’s amazing! Paying it little by little is also much better than paying it all at once too.
I paid mine off because I assumed wrongly it would negatively impact me, it’s an issue I don’t think the loans company are too upfront about if I’m honest x
I am 100% behind you. I didn’t have enough education and there wasn’t enough guidance out there to know whether it was the right decision. I assumed paying off debt was the right thing to do but it’s not the same as other kinds of debt x
Some great tips here. I have one in his 2nd year of uni and I do worry about him paying his fees back
I agree with you that you could have used that money elsewhere if you had hindsight. One good think is that at least you didn’t have to carry that burden years to come. It’s a shame really that students have to have that debt. I was the lucky ones and got a grant. That’s how old I am. LOL.
Yeah, I’m glad I don’t have to worry about it going forward but there’s certainly not enough guidance out there for students who have just finished uni. You did so well to get a grant when you went! x
As someone who has just completed 3 years at uni and start another year on Monday I have been reading about this topic. I won’t be in any rush to pay mine off haha!
Growing up I remember my parents talking to me about ‘good’ and ‘bad’ debt – credit cards were solidly bad due to their terms and the cost, but student loans were solidly good. As such it never crossed my mind to pay it off early, I just let it run its course and was thrilled when it cleared!
I think cause none of my family had been to university beforehand my parents sadly didn’t know enough about it to guide me x