Martin Lewis Advises Viewer on Whether to Overpay Student Loan or Mortgage

Money-Saving Expert Martin Lewis Advises Viewer on Student Loan Overpayment

During a live Q&A session on his app, Money-Saving Expert Martin Lewis encountered a viewer who was contemplating what to do with some extra cash they had on hand. The viewer was considering overpaying their student loan, but Martin cautioned that this may not be the best option for everyone.

Martin explained that overpaying a student loan would only be beneficial for those who have a significant amount of money and can pay off the entire loan. For others, he suggested putting the money towards their mortgage instead, as it is a more difficult form of debt to clear.

Since there are five different student loan plans, Martin based his advice on plan 2, which is the most common plan for undergraduate and postgraduate students who took out loans between September 2012 and July 2023. This plan requires borrowers to pay back 9% of their income over a certain threshold for 30 years, after which the loan is written off.

Martin emphasized that only 23% of borrowers on this plan are expected to clear their debt before it is written off. He advised that overpaying would only make a difference if it helps the borrower clear the loan before it is wiped, saving them future repayments.

While overpaying may not benefit everyone, Martin noted that high earners or those who borrowed a small amount and can afford to clear it before it is written off may benefit from overpaying their loans. For borrowers on other plans, such as plan 5 which is active for 40 years, the odds are more favorable for overpaying rather than waiting out the debt.

In conclusion, Martin Lewis provided valuable insights on when it may be beneficial to overpay a student loan and when it may be more prudent to focus on other forms of debt repayment. His advice serves as a helpful guide for individuals navigating their student loan repayment options.