Martin Lewis says people ‘flushing money down loo’ in loan error

While addressing fan questions during a live Q&A on his app, Money-Saving Expert Martin Lewis came across one viewer who was lucky enough to have some spare cash they were debating what to do with. Their first port of call was putting the money towards overpaying their student loan, but Martin warned that although this seemed to be the best option it would only work for certain people.

He cautioned that, for most, overpaying your loan will only be beneficial if “you’ve got a lot of money and can clear the whole thing”. The finance guru advised that if not; “You’re better off putting the money towards your mortgage which is a lot more difficult form of debt to clear.”

Because there are five different student loan plans people could find themselves on, and the viewer didn’t specify which they fell under, the MSE founder gave advice based on plan 2. This is the most common plan covering people who studied an undergraduate course, or postgraduate certificate of education or took out advanced learner loans or higher education short course loans between September 2012 and July 2023.

This loan requires borrowers to pay back 9% of their income over the £27,295 yearly threshold for 30 years. Once this time elapses the loan is written off. Martin shared: “The question of whether you should repay or overpay depends on whether you will clear it or not within the 30 years before the loan wipes.

Pointing out that only 23% of borrowers on this plan are expected to clear their debt before it’s written off, he added: “The only time that’s going to make a difference is if you pay enough off so you will then clear the loan before it wipes so that will save you future repayments.”

For many, a few thousand pounds still won’t stop or reduce their payments enough before it’s written off so Martin warned overpaying in this case would be “literally flushing money down the loo”. However, he pinpointed two types of people who may benefit from overpaying their loans: high earners or people who only borrowed a small amount and can afford to clear it before it’s wiped.

For savers on other student loan plans, particularly plan 5 which is active for 40 years before being wiped, the odds swing more in favour of overpaying rather than waiting out your debt. Martin explained: “More people are likely to clear that in full and if you are likely to clear it in full you are better off paying it.”