How long should it take you to pay off a student loan?
A friend of mine recently visited me from America and we got talking about the cost of tuition and whether or not university is actually worth it. We had a debate for hours arguing about the positives and negatives and the outcome was still undecided. I suppose it’s because our backgrounds are different he is a self employed business owner who built up his life from scratch and all University would have been to him was a unnecessary expense.
What I want to discuss with you today is how long you should look to pay off your student loan. I was in with a surprise when I googled the term how long does it take to pay off a student loan. The first thing that came up was a calculator that estimated according to your starting salary after university how long it would take to pay off. I found it really depressing I entered my starting salary and it said I would take 20 years to pay it off! Well I did it in 4 so it was a pile of crap! For some it could also be very depressing as they assumed a person with a starting salary of £20’000 would peak at £35’000 during their career. While someone starting at £30’000 will go onto £100’000 within 7 years.
I suppose there is some truth behind the figures but purely because of the vast majority of people who now go to University in the UK even if it is to study media! Sorry to all those media students I do hope you go onto become the next Steven Spielberg but he did it by sneaking into Universal studios and not filming me in the lab!
So let’s have a look at an action plan!
If you’ve accumulated the average debt of £21’000 how are you going to pay it off. A myth is that student loans don’t have an interest rate they do! So paying the bare minimum isn’t always advisable if you do need to take out a loan to start a business then don’t pay off more than you have to because you should keep the capital you have on your for investment so your loan can be lower. Please make sure you business will be 100% successful and don’t go getting yourself in more debt!
I recommend setting aside 15% of your income after the initial student loan payment has been taken out of your paycheck! This reduces the average time of repayment by 10 years. I would say 8-10 years is what you are aiming for to pay off your loan so that’s just over £2000 a year if you don’t take into account interest which over those 8-10 years means you pay back nearer 30k.
Finally just be happy you’re not in America where tuition fee’s at some universities reaches $40’000 a year!