Should I overpay my student loan?
This projects your balance forward to the write-off date using your salary and expected pay growth, so you can see whether you would ever clear it, and whether overpaying is worth it or simply money paid towards a debt that would be cancelled.
How the projection works
Each year the model adds interest to your balance, then takes off that year's repayment, which is 9% (or 6% for a Postgraduate Loan) of income over the threshold. Your salary grows by the rate you set, and the loop runs to the write-off horizon for your plan: 25 years on Plan 1, 30 on Plan 2 and Plan 4, and 40 on Plan 5. If the balance reaches zero first, you clear it. If not, whatever remains is written off.
The honest answer for most people is that they never repay in full. On a 40-year Plan 5 term with interest compounding, a middle income often clears only part of the balance before the write-off cancels the rest. When that is the case, overpaying does not save you anything, because you would not have paid the written-off part anyway.
Worked example
Take a £45,000 Plan 5 balance on a £32,000 salary, 3% pay growth and 4.3% interest. The projection never clears it: about £1,167 is written off at year 40. Overpaying here would simply pay down a balance that was going to be cancelled, so it is hard to justify. Change the inputs to see where the break-even sits for you.
Common questions
Should I pay off my student loan early?
Only if you would clear it in full well before the write-off date. If the projection shows a large balance written off at year 30 or 40, overpaying hands money to a debt that would be cancelled anyway. If you clear it years early, overpaying shortens the term and saves interest.
Is a student loan really like a graduate tax?
For many people, yes. You pay a fixed percentage of income over the threshold for up to 30 or 40 years, then anything left is written off. If you never clear the balance, the total you pay depends on your earnings, not on how much you borrowed.
Does overpaying reduce my monthly deduction?
No. The monthly repayment is a percentage of income over the threshold and does not change with the balance. Overpaying only reduces how long you keep paying, and only helps if you were going to clear the loan before it is written off.
Why do most people never repay in full?
Because repayment is capped at a percentage of income and stops at the write-off date. On Plan 5, with a 40-year term and interest added each year, a typical balance often grows faster than a middle income can clear it, so the remainder is written off.
When is my student loan written off?
It depends on the plan: Plan 1 after 25 years, Plan 2, Plan 4 and Postgraduate after 30 years, and Plan 5 after 40 years, counted from the April you were first due to repay. Anything outstanding at that point is cancelled.