Does it make sense to pay off my student loan early?

While many individuals choose not to fully repay their student loans, there are instances where early repayment might be worth considering. Here’s an overview to help you decide.

Should I make early repayments towards my student debt?

The answer is likely no. Typically, when it comes to debt, paying off what you owe in excess and reducing interest is a sensible financial move. However, student loans are an exception where going the extra mile might not be in your best financial interest.

This is because a majority of individuals do not fully repay their loans before the government eliminates the debt. The government forgives your loan, including any outstanding interest, 25 to 40 years after your payment initiation or when you turn 65, depending on your specific student loan plan.

Considering most people do not clear their loans by the deadline, voluntarily paying additional funds won't result in reduced payments or earlier loan clearance—it essentially translates to squandered money.

Many individuals worry about £50,000 debts and increasing interest rates, but these concerns are largely inconsequential. If you were never going to repay the loan within 30 years, any extra interest is eventually wiped by the government. Furthermore, student loans do not impact your credit file, making them unlike traditional debts when seeking loans from lenders.

It's more practical to perceive student loans as a form of tax. Irrespective of the borrowed amount or interest charges, you pay a fixed percentage when your salary earnings exceed the specified threshold. For example, if you have a Plan 2 loan, your repayment amounts to 9% of your salary over £27,295 p/a (or £2,274 p/m). Earning less than this absolves you from making payments.

Consequently, only high earners likely to clear their loans before they're wiped and should consider overpaying. If you fall into this category, extra payments should be on your radar since the longer the loan duration, the more interest you'll incur, which can be substantial. If you are a high earner consider using the Student Fiannce Calculator to explore your montly repayment schedule and compare different additional payment structures.

To assess your situation, consult the Student Loans Company website.

Student Loans Company website

How much is repaid?

Plan type	Yearly threshold	Monthly threshold	Weekly threshold	Interest rate
Plan 1	£22,015	£1,834	£423	6%
Plan 2	£27,295	£2,274	£524	7.3%
Plan 4	£27,660	£2,305	£532	6%
Plan 5	£25,000	£2,083	£480	7.3%
Postgraduate Loan	£21,000	£1,750	£403	7.3%

Student finance England

Plan 1 - If you started university before September 1, 2012
Repayment starts in April after your course concludes, upon securing a job surpassing the threshold
As of 2023, earnings over £22,015 — equivalent to £423 weekly or £1,834 monthly—entails 9% of the surplus going towards loan repayment
This threshold adjusts annually in April, often increasing (allowing higher earning limits before repayment starts)
Employers automatically deduct repayments from your salary
The debt clears at 65 for loans taken before 2006 or 25 years after initial payment for loans after that period.

Plan 2 - If you started university after September 1, 2012
Loan repayment starts four years after course initiation or upon course completion/withdrawal in April
Payment initiation occurs upon earning £27,295 annually—equivalent to £2,274 monthly or £524 weekly—with automatic deductions from salary
Earning above £27,295 means 9% of the excess is allocated to loan repayment
Loan clearance occurs 30 years after the first payment.

Plan 5 - If you started university after August 1, 2023
Loan repayment starts four years after course initiation or upon course completion/withdrawal in April
Payment initiation occurs upon earning £25,000 annually—equivalent to £2,083 monthly or £480 weekly—with automatic deductions from salary
Earning above £25,000 means 9% of the excess is allocated to loan repayment
Loan clearance occurs 40 years after the first payment.

Pay of student loan or other debts?

When confronted with additional debts alongside your student loan, it's prudent to prioritize those over early student loan repayment. These debts might include:

• Outstanding credit card balance
• Non-interest-free overdraft
• Loan with higher interest than the student loan
• Credit Card Debt: Debt incurred by using a credit card for purchases, with interest charged on outstanding balances.
• Personal Loans: Loans borrowed from banks, credit unions, or online lenders for various purposes, such as home improvements, weddings, or debt consolidation.
• Mortgages: Loans used to purchase a home, secured by the property itself. Monthly payments include both principal and interest.
• Student Loans: Loans taken out by students to cover tuition fees and living expenses during their education. Repayment is often income-based.
• Car Loans: Loans used to finance the purchase of a vehicle, with the car itself serving as collateral.
• Payday Loans: Short-term, high-interest loans usually intended to cover unexpected expenses until the borrower's next payday.
• Overdraft Debt: Debt incurred when a bank account is overdrawn, often accompanied by fees and high-interest rates.
• Store Credit Debt: Debt accumulated by purchasing items on credit through specific retailers or stores.
• Utility Bill Arrears: Unpaid bills for essential services such as gas, electricity, water, or council tax.
• Council Tax Arrears: Unpaid local property tax, which can lead to legal action if not addressed.
• Hire Purchase Debt: Debt from buying goods on hire purchase, where ownership is transferred to the buyer once all payments are made.
• Catalogue Debt: Debt from purchasing items through catalogues or online retailers on credit.
• Debt Collection: Debt accumulated from unpaid bills or loans that have been transferred to a debt collection agency.
• Pawn Shop Debt: Debt from pawning personal belongings for a loan, with the items held as collateral.
• Bailiff Debt: Debt enforced by a bailiff, often related to unpaid taxes, fines, or court judgments.
• Business Loans: Debt acquired by businesses to finance operations, expansion, or investments.
• Buy Now, Pay Later Debt: Debt accrued by using "buy now, pay later" services, often with deferred interest.
• Gambling Debt: Debt incurred due to gambling losses, including online betting, casinos, and sports betting.
• Medical Debt: Unpaid medical bills resulting from healthcare services or treatments.
• Income Tax Debt: Debt owed to HM Revenue and Customs (HMRC) due to unpaid income tax or self-assessment tax.

Student loan repayments derive directly from your salary, with payments necessary only if your earnings exceed certain thresholds. Consequently, there's minimal risk of falling behind on these payments, unlike other debts.

If your student loan is your highest-interest debt and you anticipate repaying it before the wipeout, prioritizing its repayment over other debts might be considered.

Making overpayments

Overpayments on your loan can be done a few ways:

Pay an additional amount online to the Student Loans Company via credit or debit card, with a £5 minimum.

Mail a check or postal order to the Student Loans Company, including your Student Support Number on the reverse side.

Set up a direct debit or standing order via a Student Loans Company adviser.

Be aware that refunds for overpayments cannot be provided if you change your mind. Ensure you can manage without the funds you send.

How to calculate your student loan repayments

Use our FREE Student Finance Calculator for a personalised break down on your repayments and explore the potential savings through over payments.