The average graduate's student debt is £45,000 - but money experts say it doesn't always make sense to put extra cash towards your student loan to try and clear it.
Figures revealed UK's biggest student loan debt is more than £231,000. The average is £45,000 - but experts warn against overpaying: Here's whyMany students and their parents will have been shocked by news of Britain's biggest student debt, which sits at a huge £230,000.
These are the kind of figures that can strike fear into the hearts of students and their parents, even though they may be outliers that are far bigger than the typical graduate's debt. Finance experts say that for some, especially those who don't earn a large wage or have borrowed a lot of money, it doesn't make sense to put extra cash towards your student loan or try to pay it off in its entirety.
Students attending university this year will pay £9,250 in fees per year, and can borrow up to £9,978 as a maintenance loan, or as much as £13,022 if they study in London.They pay 9 per cent of their earnings above the threshold on plan 1, 2, 4 or 5 or 6 per cent of their earnings above the threshold on a postgraduate plan.What interest is charged on student loans? Interest rates have typically been based on the Retail Price Index rate of inflation .
For students who began university before 2012, they will begin paying when they earn £22,015 per year.For students who only began their degree last year, on a plan 5 scheme, will start paying once they earn more than £25,000. How long would the £231,000 take to pay off? With a repayment period of 30 years, the person who has racked up debts of more than £231,000 would need to pay £7,713 each year in order to pay off their loan, even if they didn't incur any more interest .
'So a student that never earns above the £27,295 figure, for example, would never repay a penny so it would be pointless overpaying. 'Of course, no one wants to see thousands of pounds of interest added to the loan, but rather than panic about how to clear the liability, a better strategy for most is to treat the loan like a tax and ignore the interest applied altogether.Myron Jobson: Paying back student loan debt could mean you need to borrow more
Using money to overpay your student loan now could mean that you’d essentially have to borrow it back elsewhere in future at a higher rate of interest Myron Jobson, senior personal finance analyst at Interactive investor, says: 'While you might not have any debts or financial commitments now, it is possible that you will in future for a mortgage, a car loan or even to start a business.
'No one has a crystal ball so those worried about their loans should ignore the interest rate and treat the monthly payment like a graduate tax, saving any extra money for other financial goals such as a home deposit or raising a family.
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