The Student Room Group

Paying back student loans the quickest way for low income students

I come from a low income household, so I need to pay back my student loans as quickly as possible, so I can actually help my household have a higher income. Any advice? Like part time jobs during uni, bursaries, startup business, etc etc?
Reply 1
Why would you *need* a higher income? Student loans are taken out of your income automatically just like income tax and national insurance. It is 9% of any money over the £27,500 threshold., you most likely won't pay it back in your life and it is written off after 30 years, you paying it off early doesn't really help you at all.
Reply 2
Original post by cos123
Why would you *need* a higher income? Student loans are taken out of your income automatically just like income tax and national insurance. It is 9% of any money over the £27,500 threshold., you most likely won't pay it back in your life and it is written off after 30 years, you paying it off early doesn't really help you at all.


Btw, it's written off after 40 years now, and the threshold has been lowered to £25,000. F the tories
Reply 3
Original post by .N.A.
Btw, it's written off after 40 years now, and the threshold has been lowered to £25,000. F the tories


That's only if you start a course this September onwards. Not for those that have already started a course.
Reply 4
Original post by cos123
That's only if you start a course this September onwards. Not for those that have already started a course.


Oh yah, I presumed they're starting this year but you're right
Original post by adyysonline
I come from a low income household, so I need to pay back my student loans as quickly as possible, so I can actually help my household have a higher income. Any advice? Like part time jobs during uni, bursaries, startup business, etc etc?


If you do the math, it turns out you need to earn an exorbitant amount (compared to median salary) for it to be "profitable" to pay it back early compared to paying back the bare minimum with age. Chances are that unless you're a consultant GP, well-paid lawyer/solicitor, or a very decent microbiologist/CS, you'd be a fool to pay it back early.

As an example, consider someone earning £A. The salary they earn per year will increase from the base by say, X% (an overestimate, frankly. That gives their salary as a function of "year since graduation" of

E(y)=A×(1+X100)yyε[0,]E(y) = A\times\left(1+\frac{X}{100}\right)^y \hspace{1em} y\varepsilon[0,\infty]

Now, the amount of "tax" this individual pays on their income will be 10% (if you pay the minimum amount) of the excess over £27,000. Thus, we can evaluate the "grad tax per year" through

G(y)=0.1×max{E(y)27000,0}G(y) = 0.1\times\textrm{max}\left\{E(y) - 27000, 0\right\}

where the units are (obviously) GBP. Now, the amount of "loan" one owes scales as E(y), albeit with a different multiplier and interest-

L(y)=B×(1+Z100)yL(y) = B\times\left(1+\frac{Z}{100}\right)^y

To figure out the amount paid by year uu (if one were to pay the bare minimum per year) we can just evaluate

T(u)=0yG(u)T(u) = \displaystyle\sum_0^y G(u)

Google calls X 6.9 for the private sector and Z around [5,6.6] so we'll call that 6.9% and 5.75% respectively. We'll call B £60,000 (I come from low income and my loan ended up £100k for 5 years, so 3 years for £20k is fair game.) We'll let A and u be floating variables defined over a grid that we'll put into a colour plot we'll show later.

So far this is all worthless- we want to know if it's more "profitable" to settle our debts early. For the sake of that, I'll add another plot showing total repayment minus initial loan amount.

I'm a lazy bugger, so I've not done anything for the negatives on the top plot (obviously repayment ends there and it's "undefined" logically.) Here's the plot for the above discussion (60k loan, 6.9% salary compound and 5.75% loan interest)

testplot.png

So, there you have it- for the average poor sod on a £60k BSc loan and the current rates. You might ask "What does this all mean, you idiot?" well...

Plot A shows that someone earning a base of around £45k at present will just barely make repayment of the loan when paying the minimum amount. 30 years of interest at 6.9% though? That's an endpoint salary of around £330K. Hah- not happening. My plot is woefully overestimating E(y) toward the later years, which does not continue increasing exponentially, but instead plateaus or "steps" with promotion. Consequently, you can expect the contours to shift to the right and up. It does however show that for basically anyone who starts on a low base salary, you have no chance at repaying the loan when paying the "minimum amount."

Plot B shows that basically everyone will fully repay the "initial loan" without any sort of interest considered. Again though, this assumes someone starting on £20k ends up at £106,000 after 25 years. That won't happen. The contours will inevitably shift to the right and up, too. Realistically speaking, some individuals earning higher salaries will make a "profit"- that doesn't account for whether it'd be better to just pay the tax and have the money upfront for investment or other purposes- buying a flat/house can make a tidy sum if you invest with partners, for example.

Our salary model E(y) was a bit bad clearly- so I'll try a more realistic one, where the rise is roughly linear until it plateaus at double the base salary (again, very generous) following

E(y)=B+B×y30E(y) = B + \frac{B\times{y}}{30}

In this case, our plots look like this

testplot1.png

With the more realistic model, basically no one on a base under £80k pays back the loan in full at the minimum rate of payment. No one earning under around £33k at starting salary would even repay more than their borrowed amount not accounting for interest of the initial amount. Unless you plan to double your salary or better over 30 years in a linear fashion, and your base is higher than £33k, it makes no sense at all to repay the £60k upfront.

Anyway, do as you like, here's the code-

Spoiler


Sorry if it's dirty- I've not done Python for a while and this was quickly slapped up. Note also that our salary model is still quite inaccurate- it's possible I've either under/overestimated repayments/etc. It stands as a matter of fact though, that even with an insanely overestimated model (the top one) most people will never repay their loans.

One last note!
Parabolic contours = due to continuing repayment past due. Ignore past due.
(edited 1 year ago)
Original post by cos123
Why would you *need* a higher income? Student loans are taken out of your income automatically just like income tax and national insurance. It is 9% of any money over the £27,500 threshold., you most likely won't pay it back in your life and it is written off after 30 years, you paying it off early doesn't really help you at all.


True but my family already has a history of debt. I value financial freedom, so paying off or graduating with the least amount of debt is the ideal. Even if its written off after 40 years, that's gonna be 40 years of me paying debt. But what do you mean paying it off early wont help?
PS: I do start this year, Aerospace engineering at UoBath
(edited 1 year ago)
To have the highest net pay for the longest amount of time, simply keep your repayments to the minimum and wait for any outstanding balance to be written off. As above, it’s very foolish to overpay unless you are wealthy and are feeling charitable.
Original post by Callicious
If you do the math, it turns out you need to earn an exorbitant amount (compared to median salary) for it to be "profitable" to pay it back early compared to paying back the bare minimum with age. Chances are that unless you're a consultant GP, well-paid lawyer/solicitor, or a very decent microbiologist/CS, you'd be a fool to pay it back early.

As an example, consider someone earning £A. The salary they earn per year will increase from the base by say, X% (an overestimate, frankly. That gives their salary as a function of "year since graduation" of

E(y)=A×(1+X100)yyε[0,]E(y) = A\times\left(1+\frac{X}{100}\right)^y \hspace{1em} y\varepsilon[0,\infty]

Now, the amount of "tax" this individual pays on their income will be 10% (if you pay the minimum amount) of the excess over £27,000. Thus, we can evaluate the "grad tax per year" through

G(y)=0.1×max{E(y)27000,0}G(y) = 0.1\times\textrm{max}\left\{E(y) - 27000, 0\right\}

where the units are (obviously) GBP. Now, the amount of "loan" one owes scales as E(y), albeit with a different multiplier and interest-

L(y)=B×(1+Z100)yL(y) = B\times\left(1+\frac{Z}{100}\right)^y

To figure out the amount paid by year uu (if one were to pay the bare minimum per year) we can just evaluate

T(u)=0yG(u)T(u) = \displaystyle\sum_0^y G(u)

Google calls X 6.9 for the private sector and Z around [5,6.6] so we'll call that 6.9% and 5.75% respectively. We'll call B £60,000 (I come from low income and my loan ended up £100k for 5 years, so 3 years for £20k is fair game.) We'll let A and u be floating variables defined over a grid that we'll put into a colour plot we'll show later.

So far this is all worthless- we want to know if it's more "profitable" to settle our debts early. For the sake of that, I'll add another plot showing total repayment minus initial loan amount.

I'm a lazy bugger, so I've not done anything for the negatives on the top plot (obviously repayment ends there and it's "undefined" logically.) Here's the plot for the above discussion (60k loan, 6.9% salary compound and 5.75% loan interest)

testplot.png

So, there you have it- for the average poor sod on a £60k BSc loan and the current rates. You might ask "What does this all mean, you idiot?" well...

Plot A shows that someone earning a base of around £45k at present will just barely make repayment of the loan when paying the minimum amount. 30 years of interest at 6.9% though? That's an endpoint salary of around £330K. Hah- not happening. My plot is woefully overestimating E(y) toward the later years, which does not continue increasing exponentially, but instead plateaus or "steps" with promotion. Consequently, you can expect the contours to shift to the right and up. It does however show that for basically anyone who starts on a low base salary, you have no chance at repaying the loan when paying the "minimum amount."

Plot B shows that basically everyone will fully repay the "initial loan" without any sort of interest considered. Again though, this assumes someone starting on £20k ends up at £106,000 after 25 years. That won't happen. The contours will inevitably shift to the right and up, too. Realistically speaking, some individuals earning higher salaries will make a "profit"- that doesn't account for whether it'd be better to just pay the tax and have the money upfront for investment or other purposes- buying a flat/house can make a tidy sum if you invest with partners, for example.

Our salary model E(y) was a bit bad clearly- so I'll try a more realistic one, where the rise is roughly linear until it plateaus at double the base salary (again, very generous) following

E(y)=B+B×y30E(y) = B + \frac{B\times{y}}{30}

In this case, our plots look like this

testplot1.png

With the more realistic model, basically no one on a base under £80k pays back the loan in full at the minimum rate of payment. No one earning under around £33k at starting salary would even repay more than their borrowed amount not accounting for interest of the initial amount. Unless you plan to double your salary or better over 30 years in a linear fashion, and your base is higher than £33k, it makes no sense at all to repay the £60k upfront.

Anyway, do as you like, here's the code-

Spoiler


Sorry if it's dirty- I've not done Python for a while and this was quickly slapped up. Note also that our salary model is still quite inaccurate- it's possible I've either under/overestimated repayments/etc. It stands as a matter of fact though, that even with an insanely overestimated model (the top one) most people will never repay their loans.

One last note!
Parabolic contours = due to continuing repayment past due. Ignore past due.

Geez wow how did u have the time for this damn. But thanks!! I had multiple brain-farts reading that but I think I got it.
Original post by adyysonline
Geez wow how did u have the time for this damn. But thanks!! I had multiple brain-farts reading that but I think I got it.


Didn't take that long :P

My point is that unless you're going to be making five zeros after graduation, there's no point in paying it off fast. Paying off the minimum amount and using the £60k for investment or something else is much more worthwhile.

It's not a loan. It's a tax. Only a fool thinks otherwise.
As said, there is zero benefit to an early repayment. Do the minimum.
Far better to avoid debt elsewhere by using that income to buy needed goods/food/accommodation.
Even now, the student loan is one of the best low interest loans that you can get.
Original post by Callicious
Didn't take that long :P

My point is that unless you're going to be making five zeros after graduation, there's no point in paying it off fast. Paying off the minimum amount and using the £60k for investment or something else is much more worthwhile.

It's not a loan. It's a tax. Only a fool thinks otherwise.


The OP will be subject to the new plan 5 conditions of a 40-yr repayment term and a lower £25,000 repayment threshold (although a lower interest rate of RPI). I've seen articles saying that for many students it will double the cost of a degree compared to the former plan. Any chance of redoing the charts to compare? :colondollar:
Original post by adyysonline
Geez wow how did u have the time for this damn. But thanks!! I had multiple brain-farts reading that but I think I got it.


The following article is also worth a read:

https://www.moneysavingexpert.com/students/student-loans-2023/
Original post by .N.A.
Btw, it's written off after 40 years now, and the threshold has been lowered to £25,000. F the tories

Nope, the reason why we have student loans is because there are more students than there are graduate jobs and it is impossible to send 50% of young people to university for free.
Original post by adyysonline
True but my family already has a history of debt. I value financial freedom, so paying off or graduating with the least amount of debt is the ideal. Even if its written off after 40 years, that's gonna be 40 years of me paying debt. But what do you mean paying it off early wont help?
PS: I do start this year, Aerospace engineering at UoBath

Why don't you do a degree apprenticeship if you are that concerned about the debt?
Original post by normaw
The OP will be subject to the new plan 5 conditions of a 40-yr repayment term and a lower £25,000 repayment threshold (although a lower interest rate of RPI). I've seen articles saying that for many students it will double the cost of a degree compared to the former plan. Any chance of redoing the charts to compare? :colondollar:

For comparative purposes, here's the original plot (30 years, double initial base after 30 years, 5.75% interest on loan, etc)

testplot1.png

I've added a plot for "Repaid amount" since people will inevitably be curious.


Alright- changing time to 40 years, interest to 5% on the loan, and final salary as 8/3 (which is double + 1/3 for the extra 10 years...)
testplot2.png

Top plot: contours shift a bit to the left- more people will repay their loan.
Middle plot: overall, takes longer to repay the loan initial amount of £60,000
Bottom plot: overall, more ends up repaid.

Overall I think it's hard to say which is better- you'd need to inflation-adjust the amount repaid overall, too. In both cases I assumed a doubling of the base salary over 30 years (40 years -> 2+1/3 the base) but again, that may differ to reality. In absolute terms though, you do end up repaying more on plan 5, at least in "absolute non-inflation adjusted terms."

The RPI varying over time will influence the plots quite a bit- so will the initial loan amount (for me it was £100,000.) In my case, this looks like

testplot1.png

I'm on the original 30 year scheme. I've absolutely no damn chance of repaying. I would need a base of around £127,000 to repay it at the bare minimum rate. I won't even repay the original amount- not without a base of £40k that reaches £80k after 30 years.

I have to just add that the reason the top plot forms parabolas is because I didn't account for the loan interest outstripping salary increase- any inflected lines are thusly not worth looking at. It doesn't affect the plots validity, though.

If you want to regenerate these plots yourself
https://www.tutorialspoint.com/execute_matplotlib_online.php
Copy and paste the code in

Spoiler


I think I'll re-write this for a better set of models, i.e. a sigmoid/logistic function model of salary that rises over the loan period to some maximum, whilst simultaneously being scaled by inflation-matching pay increases (average inflation scaling a sigmoid that itself is scaled by promotion.) I'll do that when I have more time, though.
(edited 1 year ago)
Original post by Callicious
.....


Thank you so much for doing this.
Reply 16
Original post by adyysonline
True but my family already has a history of debt. I value financial freedom, so paying off or graduating with the least amount of debt is the ideal. Even if its written off after 40 years, that's gonna be 40 years of me paying debt. But what do you mean paying it off early wont help?
PS: I do start this year, Aerospace engineering at UoBath

Student loans aren't traditional debt. You will not lose your house, car or belongings for not being able to pay it fully. The mimum amount is taken automatically and you do not have to plan financially with it as whatever money you get in your bank account is yours to spend or save, it is already been done for you. Student debt also does not effect your credit score or chances or getting a mortgage etc.

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