BLOG: “The drop in NS&I rates prompted me to repay my student loan early”


Many graduates ask if they should pay off their student loan “debt” lest it affect future credit and mortgage applications. For me, it was the sharp drop in NS&I rates that prompted me to pay off my student loan in full a year earlier.

College seems to be a lifetime ago now – the best and some of the toughest times as I embark on a new chapter in my life, full of dreams and aspirations for adulthood.

After a fun gap year, I started college in 2004 and graduated in 2007. As I was eligible for the maximum maintenance loan payment (around £ 12,000 during the course), I ‘ve watched in horror my annual statements showing interest accruing on this amount each month and there was little I could do but ignore it for the time being.

In the “good times”, the interest rate reached 0% in 2009 in the aftermath of the financial crash. But I had also been billed up to 4.8% before the crisis.

In my last statement covering all debits and credits between September 2004 and February 2020, interest of £ 2,300 was applied and I only had around £ 2,300 to fully repay the student loan.

As I neared the end of my debt, I switched to direct debit payments rather than amounts withdrawn from PAYE. This is how graduates don’t end up paying too much for their loans.

Whereas before I made overpayments even when I was earning below the required threshold in order to pay off the loan faster, now I was thinking again about paying it off once and for all.

And for me, what motivated this decision were the sharp rate cuts from NS&I. I had savings in the Easy Access Income Bond product which was earning 1.16% AER. But in November, the rate was cut to just 0.01% AER.

Meanwhile, my student loan – just over £ 1,000 in January 2021 – was accumulating interest of 1.1%. It was a simple thought process, “Why should I pay this level of interest over the next year when the interest I’m earning on my savings is paltry?” “

With no other debts – aside from a mortgage we already overpay within the annual limit to avoid a penalty – and a range of short, medium and long term savings and investments, I thought that it was the right choice for me, taking into account my family’s financial situation.

And with another baby on the way and a remortgage due in 2021, it’s nice to know I won’t have to shell out three figures every month for this student hangover.

Now, this won’t be the right decision for everyone, so I suggest you read Martin Lewis’s excellent guide to student loan repayments – is it better to save or pay it off? before making a choice.

Paloma Kubiak is Associate Editor-in-Chief of YourMoney.com

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