Best way to pay off student loans?

[CS Contracting]

Hi All,

I’ve recently started contracting- I have an outside role on what is a fairly good rate to me (I’m sure others are charging far more!)

I’m going to be paying a substantial about back in my student loans, my perm role that I left, I was just hitting the thresholds where it made sense to look at repaying early, rather than letting the monthly payments go on for their 30 year life span. Now I’m contracting, I’m definitely over that threshold.

My student loan is ridiculous, it was £52k total when I finished my degree, 5 years later and having been employed and making payments for 5 years, it’s now £62k total! (In hindsight, young, naive 18yo me would have read the T&C’s properly)

Has anyone got experience paying off their student loan early and the best (tax efficient) way todo so? I’m going to ask my accountant too, but thought I’d ask here as well in case anyone has been in a similar situation.

Editing to add: I’m not planning to do this immediately, I’d like to have had work for a year and built up a “safety net” in the company in case I’m out of a role for a while. But if all does go smoothly, once my safety net is in the company, I’d like to tackle the student loan

[ladymuck]

Are you working via your own LtdCo or a brolly? As you've got an accountant, I'm assuming the former.

There isn't really a "tax efficient" way to repay. It will come out of your net personal income. When you do your SATR each year, you will tick a box to state you have a student loan to repay and you'll have that added to the amount due, in the same proportion as a salary.

If you're paying yourself a salary that will go over the threshold then you have to deduct student loan payments. If you're on a low salary / high dividend payment model then your repayments will be via your SATR.

If you want to repay quicker, then call up the SLC and ask to make lump sum payments.

Just be cautious that you don't overpay because SLC only receive information about repayments at the end of the tax year and are very slow to update records. When you get close to full settlement, make sure you track your balance closely as getting a refund is a right PITA.

[TheDude]

I would love to see student loans replaced with a graduate tax.

A £50k debt is a huge burden for many people - especially those entering poorly paid yet essential jobs such as social work yet a mere inconvenience for those entering highly paid professions.

Meanwhile those with wealthy parents enter the workplace and housing market debt free.

[quackhandle]

£52k Bloody hell!

Mine was £8k (5 years) and I remember being happy with that, thinking it was closer to £10k. £52 a month, took me 6 years to pay it off.

Looking at that debt, might have to rethink getting both the kids to go to uni, they can get out there and start earning.

qh

[BlueSharp]

Annoyingly student loans are calculated and deducted after tax calculations so there is no tax efficient way to pay them off early. The only suggestion I can make is to pay them off in bulk directly to them to try and to reduce interest if you have the spare cash. As other have said be careful when you pay the balance off if they are also collecting via salary as they take ages to stop that deduction. Not an issue on your self assessment form as you simply don't tick the box when it's paid off.

[vetran]

its £9-11k a year + subsistence loan.

https://www.gov.uk/student-finance/n...ltime-students

£50k is not unusual.

The bit that annoys me is that the interest is so high. Its garnished from your wages so its likely to be paid. Also interest rates are about to soar.

https://www.gov.uk/repaying-your-stu...n/what-you-pay

I always find that paying off the highest interest rate debts first makes sense.

https://www.moneysavingexpert.com/sa...pay-off-debts/

Assuming you are earning contractor level cash i.e. 2* employee equivalent outside IR35 then saving a third+ a month for warchest for six months should give you a month or two of warchest but cutting your outgoings will make a big difference to the length the warchest lasts. (£50k permie = ~ £3k post tax ) a £450 a day contractor will have £5,530 a month.

[d000hg]

I fondly remember paying it all off in one lump after a while contracting - so liberating.

I wonder, does the SLC care who pays the lump sum? Can for instance a rich relative pay it off for you... or for that matter can an employer offer to do so?

[CS Contracting]

Are you working via your own LtdCo or a brolly? As you've got an accountant, I'm assuming the former.

There isn't really a "tax efficient" way to repay. It will come out of your net personal income. When you do your SATR each year, you will tick a box to state you have a student loan to repay and you'll have that added to the amount due, in the same proportion as a salary.

If you're paying yourself a salary that will go over the threshold then you have to deduct student loan payments. If you're on a low salary / high dividend payment model then your repayments will be via your SATR.

If you want to repay quicker, then call up the SLC and ask to make lump sum payments.

Just be cautious that you don't overpay because SLC only receive information about repayments at the end of the tax year and are very slow to update records. When you get close to full settlement, make sure you track your balance closely as getting a refund is a right PITA.

Apologies, via my own LtdCo, still new to the industry, assumed as I said outside IR35 it would mean via Ltd.

That’s a shame there isn’t a better way to do so, thought it was worth checking.

Looking back over the last few years, my interest has averaged 5.5%!

thanks for the advice, I certainly won’t be over paying, I know what a pain SFE can be!

[CS Contracting]

I would love to see student loans replaced with a graduate tax.

A £50k debt is a huge burden for many people - especially those entering poorly paid yet essential jobs such as social work yet a mere inconvenience for those entering highly paid professions.

Meanwhile those with wealthy parents enter the workplace and housing market debt free.

Yeah, £50k is a lot, especially with it going up higher than I was repaying!

I don’t mind the system, higher earners pay it back, lower earners never have to. I do think the universities should be doing a better job though, for example, should we be letting 100,000 students take a sports science course if there’s only 10,000 jobs available in that industry? There’s alot of uni goers that go for the life style, which is fine, but it seems wrong to inflate the costs for others. £3k/year seemed reasonable. £9250/year is too much imo. It should be subsidised

[Gibbon]

Apprenticeships! Especially for general IT and software engineering. I'm technically mentoring a final year apprentice (which is also final year degree) at the moment. The work she is doing is far above any of her uni work from what I've seen (they have no fecking idea about multi-threading in a pseudo real-time system).