Student loan repayments – voluntary/low balance

Many of us spring chickens (32 at time of writing) without rich parents, took out hefty student loans to spend on white cider and silly clothes.  Some of us have paid it back already, but many are still clearing it, bit by bit.

Should I make voluntary repayments?

Your student loan is likely to be one of the lowest interest rate loans you’ll ever have.  So if you have other borrowing, especially high interest things like long term credit card debt or payday loans, then clear those off first.

If you don’t have other debts and do have spare cash, it’s personal preference.  Some want to be free from the burden, others would prefer to spend their cash on fun stuff and worry about the debt later.  Given it’s fairly low interest, the latter isn’t necessarily irresponsible.

I’ve made voluntary repayments, so I don’t have to make the compulsory repayment, right?

WRONG!  If you’re employed, student loan should be deducted from your salary via PAYE when you earn enough.  How much will depend upon your salary, with no adjustment for any voluntary payments you may have made.

Similarly if you’re self employed/a Ltd Co owner, you’ll make repayments based upon the earnings reported on your personal tax return.  Again, this amount will not be reduced by any voluntary payments you may have made.

If I make a voluntary repayment, can I get it back?

Short answer to this is no.  Possibly there are some extreme situations where it may be allowed, but don’t count on it.

Therefore, do not make a voluntary repayment of your student loan unless you’re confident you know what other liabilities you’ve got coming up, and are sure you still have the cash to spare.

Will my repayment reduce when I’ve nearly repaid my student loan?

No.  On the personal tax return, the student loan box is a simple yes/no choice.  There’s no “yes, but I only owe a little bit” option.  Therefore if your earnings lead to a repayment of (say) £5k, but you know you only owe (say) £1k, tough.  You have to make the £5k payment with your normal personal tax bill.

HMRC will pay it over to the SLC.  A little while later the SLC will do their calculations, realise it’s cleared, and refund the excess to HMRC.  HMRC will then repay the excess back out to you.  This will take a while (remember they’re both public sector departments!).

We’ve seen people who have attempted to deliberately underpay the earnings based repayment on the grounds they knew the liability was lower.  They tried explaining to HMRC why they were doing that, but the response was “tough, if you do that, we’ll pursue the rest like any other liability”.

What can I do to stop the above?

Keep an eye on your balance.  Whilst it’s big relative to your earnings, just make the compulsory repayments, with extra voluntary repayments only if you really want to.

When it gets fairly close to being repaid in full, especially if the balance left is lower than your likely repayment based on personal tax return, give the SLC a call.  Tell them you want to clear the balance, give them your debit card details, and pay it all off.

That way, on your next personal tax return you can ignore the student loan box.

For those interested, I managed to do this last year, so after a decade was finally free from my student loan, hurrah!

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