Why British grads should repay as much student-loan as possible this month πŸ”

tl;dr most UK student-loan debt just went bad this month. Repay as much as you can today, and prepare to again in 12 months time.

Because student-loans are inflation-indexed - e.g. Plan 2 loans are tracked approximately by recent RPI - the spike from Russian gas which took it to around 8% at the start of 2022 is just kicking in this September: this month Plan 2 interest jumped to 6.3%, the highest in 2 decades.
It will rise again to 7.3% for Dec ‘22-Aug ‘23.
It could go higher in Sep ‘23 - and though a ‘Prevailing Market Rate’ cap, which as far as I can tell is just an arbitrary subsidy to prevent terrible gov’t PR, may keep it down - it could go much higher. If the Tory gov’t gets ruthless and lets it track RPI, it could go as high as 23% (according to Goldman Sachs forecasts for Jan ‘23).
Unless like many of my artist peers you’re in a low-earning career likely to stay under the repayment threshold - i.e. rarely making median wage over the next few decades - that is not good debt to hold, when there is debt which is sub-inflation. For example, a long-term mortgage for 5%, or start-up loan for 6% for example.
So if you have any liquidity at the moment, student-loan is a good hole to plug.

Due to my part-time career in tech during low-inflation times (interest was only 1.5% as recently as this March, and even frozen 0% while a US student) I’d been able to voluntarily repay the vast majority of my student-loan off years ago, before this Tory-majority govt take us into deep economic headwinds.
While the last couple years pursuing music have not been enriching, today was a rare ray of financial sunlight for me. I called Students Loans for a settlement figure, and thanks to some liquidity generously made available from within my family to meet the 4-figure sum, I have paid it off. I am debt-free, and don’t take that blessing lightly.

Most grads will have 5-figure debt and won’t be anywhere near a position to settle. But however much you can repay over the next year voluntarily: do. It may not be much given how all other bills are rising too. But just like the inflation which drives it, compound-interest is an engorging monster which needs cutting down to size ASAP.

ONS RPI changePrevailingMarketRate cap. From https://www.savethestudent.org/student-finance/student-loan-repayments.html#plan2

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