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Martin Lewis gives very good reason to not pay off your student loan

Martin Lewis gives very good reason to not pay off your student loan

The Money Saving Expert comes to the rescue again

Martin Lewis has given a very good reason to not pay off your student loan.

The Money Saving Expert founder appeared on today's (7 February) episode of This Morning where he once again shared his pearls of financial wisdom amid the ongoing cost of living crisis.

One of the questions focused on student loans, something millions of Brits have to deal with.

In 2021 alone, there were over 2.75 million students at UK universities, many of which will have had to take out maintenance and tuition fee loans to cover costs.

The debt for those studying in England is even higher, as statistics from the same year show that students graduating from English universities have incurred an average of over £45,000 of student loan debt.

While millions of people are dealing with this issue right now, Lewis made a solid argument for why certain graduates shouldn't funnel their cash into overpaying their loan.

No matter what plan you took out, you'll only be paying towards it once you're earning a certain amount.

Millions of people are in student loan debt.
Pexels

For instance, if you have a plan one student loan, you'll only repay when your income is over £388 a week, £1,682 a month or £20,195 a year before tax and other deductions.

If you went for plan five, this changes to £480 a week, £2,083 a month or £25,000 a year.

With this in mind, Lewis explained: "Unless you're a high earner, you're never going to pay off your student loan."

Now, some people might feel tempted to pay off a significant chunk of the debt in one go using their savings with the aim of getting out of debt completely.

But Lewis highlighted a reason not to do this, stating: "If you decide to overpay, you'll never get that money back if you change your mind."

Student loan debt is different to that caused by other means such as bank loans, as you're only ever going to pay it back once you're on a high enough income.

And since we're all struggling right now as inflation hits record highs, it's best to save that hard-earned cash.

Lewis gave similar comments on This Morning recently when a viewer asked: "I have £12,000 in savings and I'm considering using that to take out a big chunk of my student loan, £36,000 remaining to pay.

"My hope is that it will stop interest building up, but would it actually make a difference in the long run?"

In response, Lewis said the answer is 'complicated' and depends on whether you're a low, middle or high income earner.

The Money Saving Expert founder has given his advice on the matter.
PA Images/Alamy Stock Photo

"If you never earn above the threshold you won't pay anything, if you earn a little bit above the threshold, you won't pay back what you borrowed in the first place," he explained.

"It's middle and high earners who pay the interest after university.

"For many people on the lowest incomes, you should simply ignore the interest because you'll never pay it, because you won't clear the loan in the 30 years before it wipes."

He added: "I would absolutely not pay it off unless you're certain you're going to get close to clearing that loan within the next 30 years.

"Otherwise, if you do pay it off now and want that money back later, you cannot do it if you voluntarily overpay."

Featured Image Credit: ITV/PA Images/Alamy Stock Photo

Topics: Martin Lewis, Money, UK News, Education