Thousands of graduates ‘waste money’ overpaying student loans
More than 100,000 graduates based in England made extra voluntary repayments of their student loans, and for many this is likely to have been a waste of money.
The average overpayment for the 130,000 graduates who volunteered up more of their money to repay their student loans stood at £2,740, according to the latest statistics from the Department for Education and Student Loans Company.
However, 10,600 people made voluntary payments averaging £4,310 each before any cash was even due.
This compares to the average student loan repayment in 2019/20 of £950 (by students in England, through automatic deductions from pay and earnings), up just £120 in a decade.
In total in England, £140bn was owed in student loans in 2019/20 – up 15% on the previous year, with the average amount outstanding for people starting to repay this year, standing at £40,280.
But according to Hargreaves Lansdown analysis, a student starting this year and taking full tuition fee loans and maintenance loans for fair credit could end up owing over £61,500 by the time they leave university.
Despite the eyewatering amounts and graduates wanting to chip away at the amount, this could be a waste of money, the Institute of Fiscal Studies claims, as only 17% of graduates repay their student loans in full.
And Hargreaves Lansdown calculates that in order to pay the amount off back in full, students would need a graduate salary of £53,100 (assuming no career breaks and smooth pay rises).
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Students are learning about debt the hard way.
“It’s worrying sending your children off to university to rack up tens of thousands of pounds worth of debt – and nobody likes the idea that most will be repaying it into their 50s. But by focusing on official student loans, we can end up wasting money – and overlooking the real problem debts students pick up along the way.
“Most graduates won’t come close to paying off their student loans before they’re written off. However, many are so worried about carrying the debt that they make extra repayments – in 2019/20, more than 10,000 of them started repaying before any cash was due.
“For some people, this will be a sensible approach based on careful calculations, but for many there’s a real risk these extra payments will be a waste of money – because these debts are going to be written off anyway.”
See YourMoney.com’s Student loan dilemma: when should you make early repayments? for more information.