Martin Lewis said some people might be better off not allocating extra cash towards paying off their student loan as it could amount to « flushing money down the loo ».
During a live Q&A session on his app, Money-Saving Expert Martin Lewis responded to a viewer query. The viewer had some surplus funds and was debating its usage – gravitating towards using it to overpay their student loan.
However, Martin asserted that while this seems like a sensible choice, it would be suitable only for a specific group of people.
He warned that bulk overpayment of your loan will only be beneficial if « you’ve got a lot of money and can clear the whole thing ».
The financial whizz advised instead: « You’re better off putting the money towards your mortgage which is a lot more difficult form of debt to clear. »
Given the five student loan plans individuals could potentially fall under and the viewer’s failure to disclose their specific plan the founder of MSE provided advice predicated on plan 2.
This encompasses those who embarked on an undergraduate scheme, postgraduate certificate of education or procured advanced learner loans or higher education short course loans between September 2012 and July 2023.
This loan mandates borrowers to repay 9% of their income over the £27,295 annual threshold for a period of 30 years. After this time, the loan is written off.
Martin stated: « The question whether you should repay or overpay depends on whether you will clear it or not within the 30 years before the loan wipes.
He highlighted that only 23% of borrowers on this plan are projected to clear their debt before it’s written off, adding: « The only time that’s going to make a difference is if you pay enough off so you will then clear the loan before it wipes so that will save you future repayments.
« For many, even a few thousand pounds won’t reduce their payments sufficiently before it’s written off, leading Martin to caution that overpaying in this scenario would be « literally flushing money down the loo ».
However, he identified two groups who might benefit from overpaying their loan: high earners and those who borrowed a small amount and can afford to clear it before it’s wiped.
For savers on other student loan plans, particularly plan 5 which lasts for 40 years before being wiped, the odds lean more towards overpaying rather than waiting out your debt.
Martin clarified: « More people are likely to clear that in full and if you are likely to clear it in full you are better off paying it. »
