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Student loans: guide to paying student loan debt

The interest rate on your student loan has increased massively! This debt is starting to get expensive! Should you pay it off quickly? The answer isn’t quite as straight forward as you might think.

Student loan debt (UK)

Before we dive in, it’s essential to grasp the basics of student loans. If you’re an English or Welsh student who started university before August 2012 (or a Northern Irish student since 1998), you likely have a Plan 1 student loan.

Here are some key points:

  • Interest Rate: The interest rate on your student loan is either the Bank of England base rate plus 1% or the rate of inflation (whichever is lower). As of March 2024, the current interest rate is 6.25%1.
  • Repayment Threshold: You only start repaying your loan when your income exceeds £24,990 per year (9% of earnings above this threshold). So, if you earn £26,000, your annual repayment would be £901.

If you’re on a Plan 2 student loan, you have to make student loan repayments of 9% of anything you earn over £27,295 a year (the “threshold”)

You have student loan debt

We are where we are. Let’s work out what to do with it!

The video below is the Donegans coaching Al, The Rebel HQ Building manager, through the thought process of whether he should pay off his student loans or not.

If you know someone that has a student loan then get them to watch this video and think through their personal situation. It has become very nuanced with the increase in interest rates recently. Watch the video and then think through your earning potential.

Should I pay off my student loan?

One of the biggest questions we have for you is about your earnings potential. Are you high earner? Has your degree led you to a job at Deloitte and you might make £60k+? Or have you chosen a career with lower earnings potential? This hugely affects whether you should look at your student loan as a debt to get rid of, or a life long tax on your earnings for education.

Is it a tax or a debt to get rid of? Will you ever pay it off?

If it’s a tax

Consider it as a tax if you’ve done the calculations and see that you may never pay it off. Just forget about it. Don’t have it on your net-worth tracker. Get on with living life

If it’s a debt – what’s the interest rate?

Consider it a debt if you might pay the loan off.

Less than 3% – don’t both paying it off quickly.

Between 3-5% – it’s up to you. We would not rush to pay it off, you will do better investing.

Over 5% – pay it off and get rid of it.

Is it expensive debt – above 5-6% – then get rid of it ASAP. See our debt attack strategy page.

As ever, this is NOT binary. If you have some savings that are earning less than the interest that’s building up on the student loan, consider paying off at least some of the loan.

For example, if you are not yet earning enough to have to pay anything back but you are earning some money and have a reasonable gap between your earnings and expenses, consider paying down the interest that’s building up so at least it’s not compounding against you.

See our infographic below:

Should I suppress my earnings to avoid paying off my student loan?

People often ask us about ways to make their earnings look lower so that they don’t have to pay off their student debts. (In the UK, repayments are based on how much you earn and are wiped out after 30 years.) To me, this feels like cutting your nose off to spite your face.

Playing a game to try and minimise your earnings is the wrong thing to focus on if you’re aiming to get to Financial Independence (FI) or Partial FI. Focus on maximising your earnings and paying your debts off so that once those are gone you can quickly accumulate wealth.

You are NEVER worse off earning more. The more you earn the quicker you can get onto more exciting things after getting rid of the debts.

Have other debt?

Consider your overall financial situation. If you have other debts (like credit cards or personal loans), prioritise those first. Student loans tend to be more forgiving and manageable. See our debt attack strategy page.

How to get rid of the student loan quicker?

Increase income, reduce spending and apply HUGE gap to paying it off [link off to building your gap page]

At the end of the day it’s up to you!

​​This is how we think about debt. As always, don’t take our word for it!

​Do your own homework and research and think about whether this is right for your circumstances. We are not financial advisors. You are responsible for your own financial future. Read our full disclaimer.

More info

Student loans UK

Student Loans – USA

Choose FI is a financial independence podcast whose co-host Jonathan had a LOT of student loan from studying to become a pharmacist. This article talks you through the things to think about when you’re considering paying off your student loan: Paying off your student loan versus investing