Should I pay off my student loan or invest instead?

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Shares Magazine

12 March 2026

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Ask the experts. Laura Suter is on hand to answer your personal finance questions. If you’d like a question considered for a future edition, send it in now.

I’ve seen lots of stuff in the news about student loans and how much interest some graduates are paying. I left university in 2020 and am still paying off my loan, am I affected by what’s going on? And I’ve seen some talk about people paying off their student loans by making extra payments, should I be doing that? I have spare money but I’ve been investing it instead.  

DS, London 

Laura Suter, AJ Bell Director of Personal Finance, says:

Student loans have become hot news thanks to a change the Government made to how a certain version of the loans work. Depending on when you went to university you’ll be on a specific ‘plan’ of the loans. As you went to University in 2020 you’ll be on a Plan 2 loan, whereas someone who started university last September will be on a Plan 5 loan.   

What’s happened with student loans? 

The latest change affects Plan 2 loans, so those who started university from September 2012 to 2022. The change is that the Government has frozen the earnings threshold where you start to pay back your loan. Previously this would have risen with inflation each year, but it’s now been frozen for three years at £29,385. It means that people will pay a bit more of their salary in loan payments than they would have if it had increased – and lots of graduates and experts alike have claimed this is unfair.  

At the same time, the Government has frozen the thresholds that determine what interest you’re charged on your loan. There’s a sliding scale on the interest you pay on your outstanding debt, rising as you earn more. These thresholds also usually rise with inflation but are frozen too. 

Graduates repay the loan at a rate of 9% of your salary over the threshold. By the IFS’ sums it means that a graduate earning more than the threshold will pay an extra £99 in the first year of the freeze, rising to an extra £259 in the following year.  

So put simply, if you earn above this amount, you’ll be seeing more of your money whisked out of your pay packet each month and into your student loan repayments than you otherwise would. You might see the upside here as being that you’ll pay off your loan faster. Alas it’s not that simple, for some people that’s true and for others it’s not.  

What’s the impact of voluntary payments?  

This leads neatly on to your second question about making voluntary payments on your loan. You repay your loan through your payslip but you can choose to make extra payments on top, to try to pay down the debt sooner. There’s been a big spike in people doing this: some figures crunched by the BBC found that the extra repayments graduates were making on Plan 2 loans more than trebled between the financial years 2017 and 2025 – rising from £142 million to £491 million. 

But many of these voluntary repayments may be made in vain. That’s because the debt is wiped out after 30 years (or 40 years on the latest ‘Plan 5’ versions of the loan). If you’re never going to repay the loan before this 30-year deadline, then it doesn’t make financial sense to make these voluntary payments as the debt will be wiped out anyway.  

However, if you’re going to pay off the loan within this 30-year window, then making voluntary overpayments makes sense as you’ll pay off the loan sooner and so have fewer years where you’re accruing interest.  

The frustrating thing for graduates is that it’s very tricky to work out whether you’ll be in the camp of people who pay off the loan in full (where extra repayments make sense) or if you’ll be in the camp of never-pay-it-off. It depends on your earnings through your career, whether you take any career breaks or go part-time, and how long you work for. It also depends on what the Government decides to do with the loans and whether they change the goal posts yet again.  

Broadly speaking, if you’re in a high paying job and don’t think you’ll ever take a career break, work part-time nor switch to a lower-paying job, it likely makes sense to overpay. If you are unlikely to earn much more than the threshold you’ll likely never pay off the loan, so you should avoid overpayments.   

How else could you use the cash? 

There’s also the question of what else you could do with that money – so-called ‘opportunity cost’. You mention that you’re investing that money at the moment. That means you’re building up a pot that could be used for a house deposit or could enable some other big move in your life. That would be lost if you re-directed all that money into student loan payments.  

It means the decision of whether to overpay partly comes down to career choices and earnings, and partly down to personal priorities of what’s more important to you. If you feel the weight of the burden of the loan on you and your main goal is to pay it off – making those payments may make sense (once you’ve factored in the earnings points we’ve talked about). But you have to acknowledge that that may come at the cost of saving for your future or getting on the property ladder.  

Other people prefer to see the loan repayments as a ‘graduate tax’ of 9% on their earnings that they’ll pay for life and disregard the actual loan amount. On this basis they may instead focus on using any spare money on investing for their future. That doesn’t give you a black and white answer, but hopefully it helps you to decide what to do.