If you plan to take out government student loans, you should take some time to consider the best way of paying it back.

UPDATE: Data 2020/2021

Factors include your starting wage, and how quickly it increases thereafter; inflation and the fact that remaining debt is written off – but only after 30 years! Let’s take a look at what the experts have to say.

Should I pay my fees upfront?

Given the fees universities can now charge, it’s no wonder parents are keen to help their children avoid the enormous debt that can result from a government student loan. If your family funds your degree upfront, you won’t have to worry about interest racking up while you study or financial unknowns when you graduate. But just hold your horses. A report by the Institute of Fiscal Studies found that 73% of students won’t ever repay their loan in full under the post-2012 system. Which is why financial adviser Philip Milton says, “Parents and grandparents who are considering helping children or grandchildren pay university fees upfront should consider whether they are making optimum use of their money.” As undergraduate, repayments don’t kick in until you’re earning at least £26,575 (as per 2020/2021 data), so graduates who go on to be low earners will pay very little, or even none, of their student loan back.

Patrick Connolly, a financial adviser at Chase de Vere, does, however, points out that while student loans won’t affect your credit score, lenders do take them into account when considering mortgage applications. The Council of Mortgage Lenders has stated, “A student loan is very unlikely to impact materially on an individual’s ability to get a mortgage, but the amount of mortgage available may depend on net income (i.e. your “take home” pay after tax and expenses).” Telegraph columnist and founder of moneysavingexpert.com Martin Lewis doesn’t see this as a big deal: “Going to university often results in earning a higher salary, which usually cancels this out easily.”

Is sticking with minimum repayments a good idea?

Once you hit the £26,575 threshold (£21,000 for postgraduates), you’ll repay 9% (6% for postgraduates) of your income above this sum, with repayments staggered according to earnings. This is a good deal for lower earners who end up paying little or nothing. Of course, the slower the repayment, the more interest you’ll pay and, therefore, the total cost of the loan grows. What’s more, the rate of interest is set according to the Retail Price Index, which means it could increase with inflation. But given any remaining debt is cleared after 30 years, for many this won’t matter.

Nicole Blackmore, finance reporter at the Telegraph, points out that high earners will also “do well”. Although they’ll have to repay what they borrowed, a faster rate of repayment means less interest is accumulated. For middle earners, the picture is very different. According to Angus Hanton at think tank Intergenerational Foundation (IF), the current student loan system amounts to a tax on this group’s earnings. The issue is you’d need to earn an annual salary of £51,000, more than twice the national average, to begin paying off any capital on a £40,000 loan. Those earning less would only pay interest. Which means many middle-earners won’t ever pay off their loan but will instead face a constant 9% “tax” on their earnings for 30 years. So, for this group, overpaying might be the best way forward.

Should I overpay?

Graduates also have the option to make voluntary payments to reduce their debt quicker. While this will decrease the amount of interest paid, it also decreases the amount of debt that could be written off. According to Martin Lewis, you might end up paying more than you need to – thousand of pounds more, in fact. He points out the “bizarre contradiction” in a repayment system that renders accumulated interest and the actual balance owed irrelevant by wiping any remaining debt after 30 years.

So if you’re not expecting to be a high earner, and therefore won’t be one of the few contenders for clearing their student debt in totality, paying off your loan quickly could be a bad move. While predicting future earnings is difficult, Milton urges students to “stand back and look at the bigger picture and work out what will make more financial sense for your particular situation in the long-term. Don’t automatically assume the best thing to do is pay off the debt.”

Early repayment is definitely something graduates who are expecting to be middle or high-earners should consider. According to the student-loan-repayment calculator on moneysavingexpert.com, graduates with a starting salary of £40,000, and whose earnings grow in line with inflation plus 2% a year, won’t have cleared their student debt in full within 30 years. However, they will at that point have paid back £133,000, which is a significantly higher amount than the £43,000 they borrowed in the first place. So if you’re studying law and expect to score a training contract with a magic circle firm, overpaying is a probably wise move. But, don’t forget, 30 years is a long time, and nobody can guarantee future earning power.