Student loan early repayment penalty plan scrapped

Student loan early repayment penalty plan scrapped
Though many on low incomes won’t benefit from repaying before the 30 year cut-off

The Government announced today students who start university in 2012 will be allowed to repay student loans early, without penalties.

Martin Lewis, creator of MoneySavingExpert.com, and head of the Independent Taskforce on Student Finance Information, says:

“These plans were thought up as a sop to make loan repayments progressive.

“Yet that totally missed the bigger picture. While student loans are a hybrid between a debt and a tax because we call it a loan, early redemption penalties to discourage people from repaying quickly would have been a nightmare for financial education.

“Over the years we’ve regulated against companies levying these type of penalties, so for the Government to have added them would have been wrong – and we told them strongly in our consultation submission.

“However, the maths behind this isn’t so simple. Even though people will now be able to repay without penalties, it doesn’t mean they should.

“Large numbers of people who aren’t on high salaries after university won’t pay off their loans in full over the 30 years before the debt wipes.

“In that case, making overpayments, especially if just slightly accelerating what you pay, could be throwing money down the drain as it won’t make any difference.”