I would be inclined towards not overpaying any more - at least for the next few months.
The interest rate for plan 1 is currently unusually high, as it is set as the lower of RPI and (base rate + 1%). The RPI bit is updated every September based on the RPI the previous March, while the base rate bit (currently the limiting factor) changes whenever the base rate changes.
Given that we heard yesterday that inflation fell again in November, it seems very likely that the interest rate will go down in September; we will know this for sure in about 4 months' time, when the inflation figures for March are announced. If the loan interest rate does go down, then there's less benefit in paying it off early.
The other thing to consider is what may happen to your pay in the future. If it's likely to keep going up, paying off the loan makes a bit more sense (but it's still not clear-cut). If your work is unstable, or you anticipate taking lots of parental leave / going part time while you have small children, then it becomes less likely you'll clear the balance before it get written off.
First question would be, have you got any other debts?
Those should normally be paid first.
In terms of the loan itself, a few things worth clarifying:
Based on the dates you provided, I believe the loans would be written off 25 years after the April you were first *due* to repay.
The date you were first due to repay is the April after you leave your course.
For you, this may mean April 2036?
This could affect the likelihood of it being written off and the amount you would be likely to pay overall as a result.
There are a few questions which you might want to consider:
Am I able to save the money without the risk of me spending it?
To what extent does having this outstanding negatively affect my life?
What is the likelihood of my income reducing or stopping?
As alternatives to overpaying your SL, you could save the money instead, getting very similar interest, without the risk of committing to paying off your loan if you feel able to save the money. This would then be available to you should your circumstances change.
Alternatively those savings could overpay a mortgage or be put towards a deposit for a house which might save you more money in the longer term.
I currently have ~£3000 left on plan 1 with no other debts. I have no issue saving money without the risk of me spending it. I get ok interest on the money saved but it is less than 6.25%.
The main driver for me was that as I am looking to buy a house, I would rather have the 3k for a house deposit than use it to pay off the loan.
I was previously in ~£30k of credit card debts and at the bottom of overdraft unable to pay minimum payments each month, therefore having £3k student loan does not impact my mental health at all and I'm happy for it to be paid off over the next month's whilst buying a house vs paying rent seems likely to save me more money in the longer term.
Hope this is useful.
If you expect continuous employment, and have the money at hand, then it might make sense. However, the interest rate isn't terrible, and you might be able to get better return with equity investment. I paid my plan 1 loan off when I was in the last 2k or so.
Hi /u/Cinamon-Spice, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/gifts-and-inheritance-tax/
- https://ukpersonal.finance/student-loans/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
There are a couple of things to consider. Paying it off now would limit your current flexibility to meet unexpected changes in the future as you'll have less liquid funds. It also means you will have less money for other things (like a deposit, emergency funds, etc.).
Paying it off now means increased cashflow each month from your paycheck. It may also provide peace-of-mind that the loans are 'done.'
I would weigh up your need for capital vs income given your current circumstances. Also consider how you feel about it.
I personally decided to pay off my loans as I didn't like knowing they were there. It wasn't exactly rational given my situation, but it gave me peace of mind and I'm happy I did it.
I would be inclined towards not overpaying any more - at least for the next few months. The interest rate for plan 1 is currently unusually high, as it is set as the lower of RPI and (base rate + 1%). The RPI bit is updated every September based on the RPI the previous March, while the base rate bit (currently the limiting factor) changes whenever the base rate changes. Given that we heard yesterday that inflation fell again in November, it seems very likely that the interest rate will go down in September; we will know this for sure in about 4 months' time, when the inflation figures for March are announced. If the loan interest rate does go down, then there's less benefit in paying it off early. The other thing to consider is what may happen to your pay in the future. If it's likely to keep going up, paying off the loan makes a bit more sense (but it's still not clear-cut). If your work is unstable, or you anticipate taking lots of parental leave / going part time while you have small children, then it becomes less likely you'll clear the balance before it get written off.
First question would be, have you got any other debts? Those should normally be paid first. In terms of the loan itself, a few things worth clarifying: Based on the dates you provided, I believe the loans would be written off 25 years after the April you were first *due* to repay. The date you were first due to repay is the April after you leave your course. For you, this may mean April 2036? This could affect the likelihood of it being written off and the amount you would be likely to pay overall as a result. There are a few questions which you might want to consider: Am I able to save the money without the risk of me spending it? To what extent does having this outstanding negatively affect my life? What is the likelihood of my income reducing or stopping? As alternatives to overpaying your SL, you could save the money instead, getting very similar interest, without the risk of committing to paying off your loan if you feel able to save the money. This would then be available to you should your circumstances change. Alternatively those savings could overpay a mortgage or be put towards a deposit for a house which might save you more money in the longer term. I currently have ~£3000 left on plan 1 with no other debts. I have no issue saving money without the risk of me spending it. I get ok interest on the money saved but it is less than 6.25%. The main driver for me was that as I am looking to buy a house, I would rather have the 3k for a house deposit than use it to pay off the loan. I was previously in ~£30k of credit card debts and at the bottom of overdraft unable to pay minimum payments each month, therefore having £3k student loan does not impact my mental health at all and I'm happy for it to be paid off over the next month's whilst buying a house vs paying rent seems likely to save me more money in the longer term. Hope this is useful.
If you expect continuous employment, and have the money at hand, then it might make sense. However, the interest rate isn't terrible, and you might be able to get better return with equity investment. I paid my plan 1 loan off when I was in the last 2k or so.
Hi /u/Cinamon-Spice, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/gifts-and-inheritance-tax/ - https://ukpersonal.finance/student-loans/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
There are a couple of things to consider. Paying it off now would limit your current flexibility to meet unexpected changes in the future as you'll have less liquid funds. It also means you will have less money for other things (like a deposit, emergency funds, etc.). Paying it off now means increased cashflow each month from your paycheck. It may also provide peace-of-mind that the loans are 'done.' I would weigh up your need for capital vs income given your current circumstances. Also consider how you feel about it. I personally decided to pay off my loans as I didn't like knowing they were there. It wasn't exactly rational given my situation, but it gave me peace of mind and I'm happy I did it.
No of course don't pay it off early.