Paying Off My Student Loan

Saturday 18th February 2017. The day I cleared my student loan balance and we can officially say we have no debt (this may change if we decide to buy a house but I’m just going to revel in our debt-free state right now)!!

The Loan

I had a total of £13,631.01 coming out of university in September 2008.

I am on plan type 1, for people receiving loans on or before September 2012. Once eligible to begin repaying your loan, your repayments are 9% of your earnings above the threshold that is determined by the Student Loans Company (SLC).

I was due to enter repayment in April 2009 after graduating in September 2008. The way student loans are repaid is HMRC collect payments monthly automatically through the PAYE system based on your annual salary. However, they hang onto that cash and only give the Students Loan Company the money annually, meaning you’re accruing interest monthly on the balance even though you’re repaying your loan monthly.

I understand it’s easier from an administrative point of view for HMRC to deposit the cash with SLC once a year instead of monthly but I still don’t appreciate HMRC holding my repayments earning interest on them, whilst my student loan accrues more interest monthly.

I went through all my old statements and found out rates of annual repayment and annual interest. For some reason, my statements show no repayments until 2011. I had a job for a year Sep 2008-Aug 2009 before I went back to university for a postgraduate degree until June 2010. I wasn’t due to begin making repayments until April 2009, so, whilst there were rightly no repayments when I was at university again, I don’t understand/can’t remember why I didn’t repay April-Aug 2009, as I earned above the threshold to repay. Anyhoo, doesn’t matter now as it’s all gone!!

*I moved to America in November 2013 and so my payments altered. Initially I didn’t have a job in America so did not have to make repayments. When I got a job and was eligible for repayments again, I started paying monthly online.

From April 2016 – February 2017 I paid a made a further £1,879 in repayments and as at February 18th 2017 my balance was £9,812.06 including all interest accrued. This was the amount I paid off in a lump sum to clear the debt.

Why Did I Pay It Off?

I can’t sit here and write that the reason I paid off my student loan was that is was the most advantageous decision for us financially. Because it wasn’t. To be completely transparent, the motivating factor behind us paying it off was emotional not strategic. We both just wanted it gone.

Currently we hold our savings in ETFs and an easy access savings account. We can’t open ISAs as we’re still living in the USA at the moment. So we’re stuck with what we had when we left the UK. We’re not currently adding any additional money to our ETFs as we’re building up our cash reserves for our upcoming move back to the UK. We want to have money for relocation costs, a car purchase, furniture purchases and a house deposit/associated buying fees.

It makes sense from the point of view of paying off the student loan vs. putting £9,000 in the easy access saver as the rate of interest on the student loan was 3.10% vs. the paltry 0.5% we get on our savings account. It makes less sense if we paid the student loan off instead of putting the £9,000 lump sum in our ETF where we could get an estimated annual 7% rate of return. But as we’re currently not focusing on the ETF, that’s a moot point.

We currently have a savings target we’d like to reach by year’s end. Thanks to a tax refund and Mr. LLC’s annual bonus, we’re slightly ahead of target at the moment. So, paying off the £9,000 in a lump sum doesn’t affect our financial goals for 2017. And paying off the student loan is in itself a great financial goal achieved!

I was also mildly concerned at the recent report  that the government is planning to sell off the student loan book, which my plan is a part of. I’m not even sure what the ramifications could or would be but at this point but I felt after reading the report that it’d be a whole lot simpler if I just didn’t have the loan at all to have to worry about this.

What tipped us over the edge and spurred us to get rid of it was listening to The Minimalist’s podcast on Finances (ep. 60) where they talk about carrying no debt. We are huge fans of these guys since we watched their documentary on Netflix and subscribe to many of their values and beliefs. Listening to the podcast just reaffirmed our belief that we want the debt gone.

More often than not, emotions play a huge role in our financial lives – for better or for worse. In this instance, we were fortunate to have the ability that paying off the lump sum was an option that was available to us. Saving £9,000 as a lump sum would have earned us more over the long term than the £200 a month I’m now saving by not having a student loan payment anymore but emotionally  and mentally we feel freed from the burden and in this instance, this is what’s most important to us.

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