Should I Repay My Student Loan Early?
When we think of loans we think of it as a large lump of money that needs to be paid back quickly. Student loans work differently from regular loans and finance. Student loans come with different specifics, if you’re wondering whether it’s worth paying your student loan back this article may help.
Types of student loans
This all depends on the year you attended university and what type of loan you received.
If you received your loan before 1998 the interest you pay goes by the RPI (retail price index) from September 2019 the inflation rate was 2.4% and you must start repaying back your loan if you earn more than £32.347 a year.
If you received your loan between 1998/2011 your loan would have been classes as a plan 1 loan, because the inflation rate is lower as soon as you earn £18.935 a year or or £19.390 as of April the 6th 2020 your repayment would be 9% about the threshold for example if you earn 20k the repayment would be £96 each year.
If you revived your student loan in 2012 or onwards your loan falls into the plan 2 category and you’re going to find your interest rate much higher coming in at 5.4% this was reduced to 6.3% in September 2019. So you will repay 9% of what you earn back if your salary is more than £25.725.
Your student loan will be automatically deducted for your earnings once you hit the threshold for whatever loan you have , you don’t have any say in it. Some people think that they should pay their loan off if they can afford to but the fact of the matter is if you are not earning more than £50.000 a year then you are debt free unless you’re thinking about getting onto the housing ladder.
If you fall into the plan A or B category your repayment will be the same no matter how small or big your loan was. It doesn’t matter when you start paying your loan back as the interest rate remains the same. If you do not pay the loan back then eventually your student loan will be wiped if you graduated 2005/2006 then by the time you reach 65 your loan will be wiped. For anyone graduating after 2006 it will be wiped after 25 years from the April you graduate and for plan 2 loans 30 years after you graduate. Statistics show over 83% of people never clear their student loan debt.
If you have other debts or credit cards it’s a wise idea to invest your money paying those off as they tend to have a much higher interest.
Putting your money into a savings account is also another great idea, you may find a higher interest rate on a savings account than the interest you’re paying on your student loan . It’s always a good idea to have something put aside for the future.It’s not always the best idea to pay your student loan off as soon as possible just so you can class yourself as ‘debt free’ .