Should I overpay my student loan?
The short answer: overpay your student loan only if you’re confident you’d clear it anyway before it’s written off. Then each overpayment saves interest. If the loan is going to be written off, which is the case for many Plan 2 and Plan 5 graduates, a £10,000 overpayment simply costs you £10,000. The table below shows where the line falls.
Why it’s not like other debt
You repay 9% of your earnings above a threshold, whatever the balance. A higher balance doesn’t raise your payments, and after 30 years on Plan 2 (40 on Plan 5) the rest is written off. So paying a lump sum off the balance helps only when it changes the date you finish or the interest you pay along the way. For anyone who’ll never clear the loan, it changes nothing. For a fuller explanation, see will you ever pay off your student loan?
Plan 2: a £10,000 overpayment at different salaries
Take a Plan 2 loan of £45,000 where repayments started in April 2021, with your pay rising 3% a year from the salary shown. This compares the total you hand over if you leave the loan alone with the total if you pay £10,000 off now, including the £10,000 itself.
| Salary now | Leave it: total repaid | Overpay £10,000: total | Result |
|---|---|---|---|
| £35,000 | £26,154 (rest written off) | £36,154 (rest written off) | Costs £10,000 more |
| £45,000 | £58,967 (rest written off) | £68,967 (rest written off) | Costs £10,000 more |
| £50,000 | £75,374 (rest written off) | £84,971 | Costs £9,597 more |
| £55,000 | £91,780 (rest written off) | £72,958 | Saves £18,823 |
| £60,000 | £86,576 | £66,634 | Saves £19,942 |
| £80,000 | £65,324 | £56,638 | Saves £8,686 |
Three patterns come out of this:
- Lower and middle earners: the loan is written off either way, so the overpayment is a pure loss of £10,000.
- Close to the line: at around £50,000 the overpayment still costs you £9,597 more in total. Without it, part of the loan is written off. With it, the loan is cleared only about a year before write-off. A small change in your pay, or in inflation, can swing it either way.
- Higher earners: from around £55,000 the loan is cleared well inside 30 years and the overpayment saves a lot of interest: about £18,823 at £55,000, and about £19,942 at £60,000.
Plan 5
On Plan 5, repayments start at a lower threshold and last 40 years, so more people clear the loan. Here is a £50,000 loan with repayments starting in 2027:
| Salary now | Leave it: total repaid | Overpay £10,000: total | Result |
|---|---|---|---|
| £35,000 | £70,797 (rest written off) | £80,797 (rest written off) | Costs £10,000 more |
| £40,000 | £106,195 (rest written off) | £99,855 | Saves £6,340 |
| £50,000 | £88,625 | £72,431 | Saves £16,194 |
| £60,000 | £74,099 | £64,602 | Saves £9,497 |
The line is lower on Plan 5, but the rule is the same: overpaying only pays off if you’d clear the loan within the 40 years.
Even then, it may not be the best use of the money
Student loan interest is currently between about 4% and 6% (4.1% to 6% on Plan 2, 4.1% on Plan 5), which is far below most other debts. Before overpaying, work through this list:
- Clear credit cards and other expensive debt first. At 24.9% APR the saving is several times larger. See which debt to pay off first.
- Build an emergency fund. Overpayments can’t be taken back.
- Get any employer pension match. It’s an instant return on your contribution.
- Compare with your mortgage: see overpay your mortgage or save.
If you’re planning to apply for a mortgage soon, note that lenders count your loan repayments as a regular outgoing, but they don’t count the balance itself.
This is general information, not financial advice. Projections assume pay rising 3% a year, inflation of 3% and today’s plan rules, which the government can change.
Common questions
Should I overpay my student loan?
Only if you are confident you would otherwise clear the loan before it is written off. Then each overpayment cuts the interest you pay. If the loan will be written off anyway, every pound you overpay is a pound you would never have had to repay.
Is it worth paying off my student loan early?
For most people on Plan 2 and Plan 5, no. For high earners who will clear the loan anyway, it can save thousands, but it often makes more sense to clear credit card debt, build savings and pay into a pension first.
Can I get overpayments on my student loan back?
No. A voluntary overpayment is final. That is why it is worth checking whether your loan is likely to be written off before you make one. Repayments taken through your pay, on the other hand, can be reclaimed if you overpaid in the tax year.
Does paying off my student loan help me get a mortgage?
Lenders look at your monthly commitments. Student loan repayments come out of your pay and are counted as a regular cost, so clearing the loan can raise what you can borrow, but only slightly for most people.
How do I make a voluntary payment?
Pay through your online account with the Student Loans Company, or use the payment details on its website. Be careful with anyone who contacts you offering to help you pay off or write off a loan, as these are scams.