10,000s risk wasting money by choosing to repay their student loan when they don’t have to
‘For some, overpaying is just flushing money down the loo’
Martin Lewis, founder of MoneySavingExpert.com, said: “In practice, for most people student loan repayments act far more like a tax than a debt.
“With interest rates for those who started uni in or after 2012 as high as 6.3%, some may assume repaying as much as you can is a boon. Yet the stats show the huge majority – over 80% – of these university leavers are unlikely to clear their loan in full in the 30 years before it’s wiped, so that interest rate isn’t what they’ll pay. For those on lower earnings, overpaying some of your loan is often futile as it won’t alter what you repay in future – in which case overpaying is just flushing money down the loo.
“For those who started university before that (or those from Scotland or Northern Ireland since) as both the amount borrowed and the interest rates are lower, you are more likely to clear all the debt before the loan’s wiped.
“But the interest rate is lower – only 1.75% – so if you’ve cash spare to make voluntary payments, there are usually better ways to use it. Clear other debts first, and consider putting extra cash in a savings account to prevent future borrowing. After all, you can earn more there than the interest is costing you – up to 2.6%.”