Should I Pay Off My Student Loan?


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Student loans are different from almost every other type of debt in a number of ways:

  • Repayments are based on your income level. This means that if you earn more you pay more, earn less and you pay less. Importantly if you earn nothing, due to losing your job or being unable to work for any reason, you pay nothing.
  • Your student loan has little, if any, effect on how lenders view you. Student loans are so ubiquitous that they are not really considered by lenders when, for example, they assess your mortgage application.
  • Your student loan is not inheritable. This means, unlike any other debt, when you die it does not have to be paid out of your estate.

And most importantly:

  • Student loans are forgiven after 25-30 years after you graduate, or when you turn 65, depending on when and where you took out your loan.

Some people simply hate the idea of being 'in debt', or they get scared at the balance increasing every year due to interest rate being higher than their repayments. If you have some savings, or an inheritance, or your parents offer to pay off your loan for you, you may wish to pay down your balance.

In a time where only 27% of 22-29 year olds are homeowners and 53% have no savings, paying any extra money on your student loan rarely makes sense when you could instead be saving for your first home or for retirement. There are some situations where paying off your student loan can save you money, but this is only usually the case for very high earners. Even then, these people could still benefit from saving this money for a rainy day.

The calculator below allows you to check how long it will take to pay off your student loan (if you are even set to pay it off on your salary), and how much you will pay in total. You can also enter any savings you have that you have been thinking of using to pay down your student loan. You may be surprised at how small a saving this is, or you may even find that you end up paying more than if you keep your savings and use them for something else. The calculator gives a snapshot of your loan repayment based on current interest rates and your current salary. It is a good idea to revisit the calculator if your circumstances change.

Disclaimer: My student loan paid for a degree in Psychology, not Finance. You should always seek advice from a professional when making financial decisions. This calculator is a work in progress. You should especially check the rules regarding interest rates and loan forgiveness if you started studying around 2006/2007 and 2011/2012. At the moment the calculator only works for student loans for Scottish, English, and Welsh students, but I hope to add functionality for Northern Irish students in the near future. The calculator also does not apply to loans taken out before 1998.

If you notice anything wrong please feel free to contact me using the link at the bottom of this page.