money

on paying off my student loan

In 2017, I paid off my student loan *cue wild cheering*. I took the unconventional route and actually paid off the remaining balance as a lump sum.

the balance

I had a total of £13,631.01 coming out of university in September 2008.

I was on plan type 1, for people receiving loans on or before September 2012. Once eligible to begin repaying your loan, your repayments are 9% of your earnings above the threshold that is determined by the Student Loans Company.

I was due to enter repayment in April 2009 after graduating in September 2008. The way student loans are repaid is HMRC collect payments monthly automatically through the PAYE system based on your annual salary. However, they hang onto that cash and only give the Students Loan Company the money annually, meaning you’re accruing interest monthly on the balance even though you’re repaying your loan monthly.

I understand it’s easier from an administrative point of view for HMRC to deposit the cash with SLC once a year instead of monthly but I still don’t appreciate HMRC holding my repayments earning interest on them, whilst my student loan accrues more interest monthly.

I went through all my old statements and found out rates of annual repayment and annual interest. For some reason, my statements show no repayments until 2011. I had a job for a year Sep 2008-Aug 2009 before I went back to university for a postgraduate degree until June 2010. I got my first permanent professional job in September 2010. So, whilst rightly there were no repayments whilst I was at university again, I don’t understand/can’t remember why I didn’t repay in the job I had Sep 2008-Aug 2009, as I earned above the threshold to repay (I was expecting to start repaying in April 2009).

YearPaymentsInterest Added Balance
Sept 2008£13,631.01
May 2009£233.93£13,864.94
August 2010£86.80£13,951.74
Nov 2011£444.00£118.60£13,626.34
Sept 2012£883.00£198.60£12,941.94
Sept 2013£1,048.00£186.75£12,080.69
Sept 2014£553.00£175.70£11,703.39
June 2015*£175.55£11,878.94
June 2016£426.00£136.27£11,589.28

*I moved abroad in 2014 and so my payments altered. Initially, when I relocated I didn’t have a job so did not have to make repayments. When I got a job and was eligible for repayments again, I started paying monthly online.

From April 2016 – February 2017 I paid a made a further £1,879 in repayments and my balance that I paid in full as a lump sum was £9,812.06 including all interest accrued. 

why did i pay it off?

I can’t sit here and write that the reason I paid off my student loan was that is was the most advantageous decision for us financially. Because it wasn’t. To be completely transparent, the motivating factor behind us paying it off was emotional not strategic. We both just wanted it gone.

Currently we hold our savings in ETF’s, ISA’s and an easy access savings account. We’re not currently adding any additional money to our ETF’s as we’re building up our cash reserves for a very likely house purchase in 2019.

It made sense at the time I paid off the balance to pay off the student loan vs. putting £9,000 in the easy access saver as the rate of interest on the student loan was 3.10% vs. the paltry 0.3% we got on our savings account. It would have made less sense if we paid the student loan off instead of putting the £9,000 lump sum in our ETF where we could get an estimated annual 7% rate of return. But as we were not focusing on the ETF, that’s a moot point.

I was also mildly concerned recently at a report  I’d read that the government is planning to sell off the student loan book, which my plan is a part of. I’m not even sure what the ramifications could or would be but at that point I felt it was a whole lot simpler if I just didn’t have the loan at all to have to worry about it.

What tipped us over the edge and spurred us to get rid of it was listening to The Minimalist’s podcast on Finances (ep. 60) where they talk about carrying no debt. We have a lot of time for these guys since we watched their documentary on Netflix and subscribe to many of their values and beliefs. Listening to the podcast just reaffirmed our belief that we want the debt gone.

More often than not, emotions play a huge role in our financial lives – for better or for worse. In this instance, we were fortunate to have the ability that paying off the lump sum was an option that was available to us. Saving £9,000 as a lump sum would have earned us more over the long term than the £200 a month I’m now saving by not having a student loan payment anymore but emotionally  and mentally we feel freed from the burden and in this instance, this is what’s most important to us.

–NC

6 thoughts on “on paying off my student loan”

  1. Congrats on paying it off! I was looking into making voluntary payments on my own student loan but have had trouble even logging in! Can’t find my ID numbers and phone support just circled me, so that’s my first port of call, find an old letter with my details…

    I’m similar to yourself, I know technically it’s not the best plan financially but the thought of being totally debt free is very appealing.

    1. Thanks! Even though it was our only debt & I see it differently to other debt, I still felt so happy getting rid of it!

      Good luck finding the info you need – it’s definitely the bane of modern life, all these account numbers/ID’s & passwords!

  2. Glad to see someone else who decided to pay off their loan early! My friends looked at me like I was crazy when I said I was repaying mine early. But my loan was inching up to almost 19k, and I didn’t feel confident reading lots of stories about the SLC messing things up; and then of course news of the loan book sale. I’ve got it down to under 5k now, and feeling much lighter. Not the best financial move in the long-run, but definitely a good emotional one.

  3. Congrats on paying off your loan – I can totally see how the maths works for you – and you personally appreciate no debt.

    I just let mine run, but that’s cause there were no adverse effects (and it didn’t get used in mortgage calculations etc in those days).

    1. Yeah, it 100% is one of those debts that you can do that with. I think my mindset towards it changed when I moved abroad & had to make manual payments towards it, I just got this weird fixation on it & it started annoying me!!

Leave a Reply

Your email address will not be published. Required fields are marked *