Bye bye student loan
19 January 2019
Today I retired my student loan with a final lump-sum repayment. Nothing special per-se but it is one more little thing that marks a closure with my former life back in the UK. The total loan was small by the standard of what UK students rack up these days, but for various reasons I paid of mine a lot later than my contemporaries.
The way UK student loans are repaid approximates a graduate tax: 9% of income above £18,330, which is deducted from your payslip in the same way income tax & national insurance is. For those like me who are overseas, a repayment schedule is based on the same principles of a proportion of income above a certain threshold, but with allowances for things like exchange rates. Basically you send in proof of current salary, and they provide you with a notice of how much in pound sterling you need to repay each month. This is known as Plan 1 which is for people who started a course between 1998 and 2011, although Plan 2 for people 2012 onwards — apart from a higher threshold of £25,000 — has the same repayment mechanism.
For Plan 1 loans the interest rate for the loan is the lower of either the Bank of England base rate plus 1%, or the RPI measure of inflation — although for 2009/2010 a get-out clause of not applying any interest rate was used to get around RPI at the time being negative. With the base rate being rock bottom for the last decade the interest rate on loans has been below inflation, which is an incentive to pay as little as possible because repayments are effectively cheaper in the future. For Plan 2 loans the base-rate cap no longer exists and the interest rate is between RPI and RPI plus 3.3% based on income, but since I don't have any such loans of the latter type I consider them outside the scope of this article.
Doing a Ph.D meant that it was not until 2010 that I became “eligible for repayment” and started to pay off any of my student loan, and even then I had not been in continuous repayment over the subsequent years. In 2013 when I was in New Zealand I did not pay anything, and for 2016 the required monthly repayment was £1 — most likely because the assessor did not notice from my payslips that I was paid fortnightly rather than monthly. Admittedly in this instance I paid significantly more than I officially needed to, but still less than what my bottom-line at the time probably warranted. Because my change of company in 2015 was shortly after I had my annual repayment assessment, and the probable screw-up with the assessment in 2016, it was only mid-2017 that my repayments took the jump to the level that are the equivalent of a top-rate UK taxpayer. With the repayment today 60% of the loan pay-off has been within the last 18 months.
At my current rate of minimum repayment the loan was expected to be paid off within 18 months, and with value of the pound going south it is quite likely that my next assessment would increase my prescribed rate of repayment. Also SLC has stopped accepting credit card payments, which for me personally makes monthly repayment a bit of a pain. I am also told of more headaches over the horizon with the sale of the student loan book, which is on top of the generally surly attitude of SLC. The deciding factor was having some spare cash that was already in pound sterling, a currency that for the time being is not worth holding much more than a cash float of, and it means that my student loan is one more things about the UK I can simply stop caring about.