This Is How Much You Now Need To Earn To Pay Off Your Student Loan In Full
We’re probably never paying it off tbh.
If you’ve ever stressed about paying off your student loan, you don’t have to worry as the average graduate won’t pay off their loan in full thanks to the amount of interest that’s added and how the repayment system works in the UK.
But if you’re a big earner, it could be possible to pay off your student loan before the remaining balance is wiped—but new research shows while it’s possible, you’d have to earn a lot and have a steady career for the next 30 years.
Loading …When do I have to pay back my student loan?
First things first, the student loan repayment system has stayed pretty much the same since Plan 2 loans were introduced back in 2012. In fact, it’s only from September this year that new students will face a pretty big change when it comes to their loan repayments.
If you started uni between 2012-2023 you don’t need to start paying back your student loan until you’re earning £27,295 a year and 30 years after you’ve graduated your loan balance will be wiped and written off.
So, if you graduate at 21, by the time you’re 51 you’ll be student loan free, regardless of whether you actually pay much of it yourself.
However, from this September new students will have to start paying it back when they’re earning £25,000 a year instead and it won’t be wiped until 40 years after graduation— which definitely hurts if you’re an incoming student.
The average student will leave uni with £46,000 worth of debt and with interest added each year (and trust us, it adds up) your debt could rise to a number closer to £60k while you’re trying to pay it off. So, even if you are making repayments each month you’re not really going to get any closer to paying if off.
How much do you need to earn to pay off your loan?
New research from the Institute Of Fiscal Studies suggests that it could be more than manageable to pay off your student loan, especially now new students have 40 years to pay it off, rather than 30.
In fact, the research suggests that if you were to graduate with a salary of £28,000 and see a regular pay rise due to inflation and an extra 1.7% a year, you would earn £1.5 million in your lifetime of working. This means you could pay off your student loan within 40 years— but we all know it’s not that straightforward.
This theory would only work if the government didn’t make any changes to the current student loan repayment scheme or threshold and also relies on you having a steady salary increase every year for the next 40 years and thinking about working solidly for the next 40 years is fairly depressing.
For 2012-2023 students who only have 30 years to pay off their student loan, you’d need to earn £44,000 a year as a starting salary with an increase of 2% above inflation every year, or £57,000 with a pay rise in line with inflation every year to pay it off in time.
This is great if you work in an industry that’s likely to pay you £44,000 for your first job, but bad news if your starting salary is £28,000 or less, as it would be highly unlikely you’d manage to pay off your loan in full unless you had a huge payrise or career jump later on in life.
So, by this logic as long as you managed to secure a steady grad job early on in your life and received a big enough payrise every year, you could technically do it but it won’t be easy.
So, if you’re doing a creative degree you might want to say goodbye to your dream of paying off your student loan in full. But, on the flip side it’s only 30 years until it’s written off so start counting down the days and try not to stress about it.
