Every Monday in our Money blog we get an expert to answer your Money Problems. Today’s question is from Ellie, who asks…
“My outstanding student loan balance is around £5k and I’m repaying it with a 4.3% interest rate. I can’t decide whether it would be better to pay it all off in one go, or leave the money in a savings account. Can you help? I have also overpaid so am technically due for a refund of £300 – but should I withdraw that money?”
I first established with you that paying off your remaining student loan would not wipe out your savings, because ensuring you have an emergency fund is really important, whatever stage you are at. The recommendation is to have the equivalent of three months’ worth of essential outgoings to fall back on.
I then consulted Save The Student (STS), to see if we could figure out what your options are.
They needed a few more details and we worked out that because you are on Plan 1 and graduated in 2013 (and thus started repaying your loan in April 2014) your loan would get written off after 25 years, in 2039.
If you’re ever unsure what your repayment terms are, you can find them here…
Tom Allingham, student money expert at STS, says: “It’s an age-old question, and there isn’t one set answer that applies to everyone. But for me, the big thing to consider is how likely you are to repay your loan in full before it’s cancelled.
“As someone with a Plan 1 Student Loan, you’re already more likely to clear your balance than others as the repayment threshold has always been the lowest, and the debt won’t have accrued as much interest as on other plans.”
He pointed out that you have a relatively small amount of debt remaining and over half your repayment term left to go. Without knowing your salary, he can’t say for certain if you will repay your debt in full, but the general consensus is that if you are earning in the high £20,000s you will repay your loan before 2039. This means clearing it early could end up…
