Why pay off your student loan early?
You will start repaying your student loan from the April after you finish your course.
If you earn more than £17,335, 9% of what you earn above this will go towards paying off your student loan.
This threshold will rise to £17,495 in April 2016.
Your repayments will be automatically deducted from your pay if you work for an employer.
Student loans of a sizeable amount will take years to pay off - especially when you factor in interest accruing on the amount you owe.
Repaying it early will speed up the process so that you have one less debt to worry about. It will also mean you end up paying less interest in the long run.
This might be especially attractive if you have had the debt for a while or just want to rid yourself of as much debt as possible.
As student loans do not come with penalties for early repayment, there is no harm in clearing the debt early.
You can find out how much you owe on the Student Loans Company website.
What if you have other debts?
Student loan interest rates currently stand at 1.5% for those who started university after 1998 (2.5% for pre-1998 starters) so any other interest-earning debts you have are likely to cost more than your student loan.
If you have outstanding debts in addition to your student loan, it could be worth prioritising these instead of overpaying on your student loan. These debts could include:
An outstanding credit card balance
An overdraft that is not interest-free
A loan with a higher interest rate than your student loan
As student loan repayments come out of your salary and you only have to make them if you earn above the £17,330 threshold, there no chance of falling behind on them and getting into the financial trouble you could with other loan types.
What if you have no other debts?
If your student loan is your only outstanding debt and you have some cash to spare, making overpayments on your loan to clear it more quickly may be the sensible thing to do.
However, student loan is probably the cheapest long-term debt you will ever have. Before you plough all of your disposable income into clearing your loan, you could consider putting the money instead into a high interest savings account instead.
Funds in a savings account could earn more interest than your loan is costing you, at a time when student loan interest rates are so low.
You could use what you save up to:
Pay off your student loan in one go
Use as a deposit for buying a house
Buy a new car without needing a costly loan
How do you make overpayments?
If you have no other ongoing debts, have cash to spare, and would rather say goodbye to your student loan debt than put the money in savings, you can make overpayments on your loan in the following ways:
Pay an additional amount online to the Student Loans Company with a credit or debit card. A minimum of £5 applies, and you will be charged 1.5% extra if you pay by credit card.
Send a cheque or postal order to the Student Loans Company, making sure to write your Student Support Number on the back.
Set up a direct debit or standing order by contacting a Student Loans Company adviser.
No refunds of your overpayments can be made if you change your mind, so make sure you are able to manage without the funds you send.
Will your debt ever be wiped?
All student loan debts will be wiped at some point later in your life:
If you started university between 1990 and 1997 and are under 40, your debt will be written off when you reach 50, or 25 years after repayments were first due - whichever comes sooner.
For 1998-2005 starters, student debts will be disregarded when you reach 65.
If you started university in 2006 or after, your debt will be wiped 25 years after repayments were first due.
In Scotland, your loan will be cancelled when you reach 65 if it was taken out in 2006/2007 or before; if it was taken out in 2007/2008 or after, it will be 35 years after you started to repay it.
All student debts will be unequivocally wiped upon death or if you become permanently unfit to work.