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Should I pay off my student loan early?

Could paying off your student loan early help you save more in the future?

While there’s a strong argument for paying off such a sizeable loan, there’s a lot to consider.

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Why should you pay back your student loan early?

Your student loan is a large debt with significant interest rates that could act as a long-term drag on your savings and financial goals. 

You must start making monthly repayments once you earn over a certain amount.

And the longer this debt remains unpaid, the more interest you could accrue. 

So, does it make sense to get this debt paid off as soon as possible? 

The answer to this question is not simple.

Your student loan doesn’t work like a traditional loan.

For example, you’ll only start making repayments once you earn over a certain amount. 

Depending on which loan plan you are on, any outstanding money that hasn’t been repaid after a set period will be wiped away, so it may not even be necessary to pay your loan back in full. 

Is paying off my student loan early right for me?

To decide whether paying back your loan early is a good decision, you will need to find out which student loan plan you are on, how much you need to pay back in total and how much of this loan you will repay through salary deductions. 

There are different loan plans, but usually, your plan depends on when you started your studies. 

If you started an undergraduate course before 1 September 2012, you are on Plan 1. So, you start repaying your student loan once you earn more than £22,015 a year, and you will repay 9 percent of your income over this amount.  

Or, if you started your course after 1 September 2012, you are on Plan 2. Under this plan, you start repaying your loan once you earn over £27,295 a year. 

You should look at your monthly payslip to see whether you are repaying your student loan and, if so, exactly how much you are paying. 

If you are on Plan 1, your debt is wiped either 25 years after the April you were first due to repay (if you took out your loan on or after 1 September 2006) or when you’re 65 (if you took your loan out before September 2006). 

You should now work out whether your current monthly contributions are likely to pay off your debts before they are written off.  

If, by paying a little extra, you can pay off your debt early, it may be worthwhile. 

The longer these repayments go on, the less money you will save for your future.

But if it’s unlikely you’ll pay back your loan before it is written off, you may be better off saving your money. 

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What alternatives are there to paying off your student loan early?

In many cases, paying extra towards your student loan isn’t worthwhile and won’t do much to help you achieve your financial goals

So, what could you be doing with your money instead?

There are more than a few ways to start saving for the future.

Let’s look at some of the most common investments you can make.  

Savings accounts 

A savings account is commonly used to save for the future.

You can often open an account with a small deposit and can make regular contributions to it. 

Some accounts let you access your savings when you want to, while others may be fixed term, meaning you can’t access your funds until the term ends. 

Savings accounts pay you interest on your savings, so the more you deposit, the more interest you’ll earn. 

But these interest rates can be low, so it’s worth shopping around.

And while these accounts offer some returns, they don’t offer the fastest or highest rate of return.  

Pensions

If planning for your retirement is your priority, one of the best saving strategies you have is contributing more to your pensions

Whether you have a personal or workplace pension, contributing extra money can boost your retirement savings.

But you can’t withdraw money from pension funds until you turn 55 (this will rise in later years), so you won’t be able to count on it in the short term. 

Investing 

Investing your money can generate better returns than savings accounts. 

You can invest your money in a range of financial products and funds, and over time, you can see the value of your investments grow.

But the value of your investment can rise and fall depending on the stock market, so this option has added risks. 

Property 

Saving enough money for a house deposit can take time, but it can also be one of the most financially rewarding decisions anyone can make. 

Investing in property is a popular way of shaping your financial future and may be less risky than other investments.  


Still not sure whether paying off your student debt early is the right decision for you? 

It’s a good idea to speak to a financial adviser who can help you make the best decisions based on your personal circumstances.

Find your next financial adviser at Unbiased. 

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About the author
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.