Pre-1998 'mortgage style' student loans – should I repay early?

Will my student loan be written off?

If you took out an old 'mortgage style' student loan between 1990 and 1997, you might be wondering whether overpaying is a good idea. With many of these loans due to be written off in the next couple of years and many, especially those who can't afford to pay back, deferring their payments – the answer is 'no'. This guide explains who has these loans, when you do and don't have to repay and whether you should ever consider overpaying. 

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Who has an 'old style' student loan and how do they work?

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If you started higher education between 1990 and 1997 and took out student finance to do so, it's likely you'll have this type of student loan. No new loans of this type were issued after 31 August 1998.

However, if you took out this type of loan for your first year of study when the system was coming to an end, you would have remained on the old system for the remainder of your course.

The way these old style loans work is very different to student loans taken out since 1 September 1998. It's referred to as a fixed-term 'mortgage style' loan because, unlike post-1998 student loans which are repaid based on income, these loans are to be repaid over five years in 60 equal monthly instalments (or seven years if the original course lasted more than three years) – and it doesn't vary according to what you earn – hence 'mortgage-style'.

This repayment length assumes you hit the repayment threshold and don't defer any of your repayments, for more on this see the sections below.

The interest rate is currently 13.5%

The interest rate on the loan is based on the rate of Retail Prices Index (RPI) inflation from the previous March. The actual rate is officially confirmed each August and set every September for the following year.

March 2023's inflation rate was 13.5%, so this is the rate for the 2023/24 academic year. Interest is calculated daily from the date your loan started and is added to your account at the end of each month. (If you're new to interest rates, read the MSE Interest rates guide).

If you earn £38,255 a year or more you must make repayments

This is known as the repayment threshold. Once you reach this threshold, you need to contact the debt management company that administers your loan to set up a direct debit, or pay by bank transfer, card or cheque. Repayments on these old style fixed term student loans won't get deducted from your pay like current student loans – the onus is all on you to set up repayments.

If you do notice student loan deductions on your payslip, and you don't have any other student finance, let your employer know as soon as possible, as it's possible they've wrongly put you on a plan 1 or plan 2 repayment scheme. Then contact HMRC to get the money refunded to you and pay it directly to your loan company. Otherwise you won't actually be paying off your student loan.

Here are the details for the three companies now collecting the loans:

You should have received a letter explaining who your loan was taken on by, but if you can't find it and are unsure, at worst you'll need to call all three and find out who is collecting your loan.

Struggling to pay? You might be able to defer for 12 months

If your income drops below the repayment threshold you can still choose to make repayments (if you wish) and you won't be penalised for doing so. However, realistically it's more likely you'll struggle to pay and need to 'defer' payments – ie, pay later.

If this applies to you, you can defer payments and not pay off your loan for 12 months at a time. You'll need to reapply for deferment every year if you still can't afford to pay, it doesn't automatically roll over to the next year. In order to defer payments you'll need to write to the debt management company administering your loan (it doesn't happen automatically just because your salary has dropped for instance).

You'll need to provide certain evidence, such as payslips or benefits letters, and you should continue to make repayments until you receive confirmation of your deferment. If you already pay by direct debit, this will automatically stop once the deferment is granted.

You're still charged interest on your outstanding balance during deferment. See Erudio Student LoansThesis Servicing or Honours Student Loans for further information on how to defer.

  • What happens to my loan if I move abroad

    You have a contractual relationship with the debt agency to repay your student loan. If at any time you move abroad, you're expected to inform them so you can make repayments directly to it (usually by Direct Debit).

    You'll be expected to make repayments once you're earning the equivalent of £38,255 a year. Depending on which company your loan is now owned by, you can find details of how to repay – see Erudio Student LoansThesis Servicing or Honours Student Loans for further information on how to make repayments if you move abroad.

    Repayments will be deducted in pounds sterling and you'll be responsible for any costs involved in converting the currency.

  • What is the impact on my credit score?

    Missed or late payments used to have an impact on your credit score. However, the credit reference agencies no longer take this into account, as there are so few of these loans left. For more info see the Student loans and your credit file guide.

Still struggling? Get free debt help. 

Once you've started repaying your 'old style' student loan, you'll have to continue to repay it until the debt is cleared. The only time you can stop repayments is if your income drops below the repayment threshold - currently £38,255. Then you can apply for a 12 month deferment (as explained above).

If you're behind on any repayments on your student loan, you might be able to get help from a free impartial debt advice agency. For more information on this, see our Debt help guide.

  • Is my 'old style' student loan regulated by the Consumer Credit Act?

    Yes. This means you have certain rights relating to your loan. If you fall behind on payments, you must be issued a default notice and be given time to repay the outstanding amounts owed before any action can be taken against you.

    The debt management company must also send you regular statements showing what you still owe and the interest being charged.

    If you default on this type of student loan, you could be taken to the county court. The debt management company would need to get a county court judgment (CCJ), which they could then enforce if you don’t pay.

    You also have the right to complain to the Financial Ombudsman Service if you're unhappy with action taken by the debt management company.

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Most of these loans are coming to the end of their life

Student loans only have a fixed life, though the exact time depends on when you took out your loan. It's also important to note that if you die the debt is wiped. While this may seem obvious, it means it doesn't form part of your estate (meaning it isn't passed on to dependants), unlike other forms of debts. The same is true if you become permanently unfit to work.

The table below shows you when your loan would be wiped...

Given the last loans would have been taken out on or before 31 Aug 1998, and most will get written off after 25 years or sooner (depending on your age), we can assume that these loans will all be written off by 31 August 2025 (25 years after the last loans were issued).

The only exception to this is if you've defaulted on your loan at any point. In which case, you're liable to keep paying what you owe and the age/time-related write off won't apply to you and you may end up paying for longer than 25 years.

When are outstanding loans wiped?

The age that you were when your last agreement for a loan was made – usually your last year of study. Age at which loan is wiped
If aged under 40
Earlier of 25 years after your first payment of your last loan agreement (usually the start of your final year), or when you reach age 50
If aged 40+ When you reach age 60

Should I pay off my old-style student loan early?

This question certainly won't apply to everyone with this type of loan, especially those who are deferring their payments. However, if you've got some savings and are wondering whether it makes sense to pay off your loan early, read on. There are no penalties for repaying early/overpaying, but that doesn’t mean it’s right for everyone:

Step 1: Work out if you’re likely to pay off your loan before it gets wiped

As explained above, if it hasn't been already, most of these types of loans are due to be wiped in the next year or so. So, if you’re not already making repayments, DON’T OVERPAY, as you’ll likely be wasting your money. If you are making repayments, work out how likely you are to repay the loan in full BEFORE it gets wiped.

If you're likely to clear the loan, overpaying might make sense, so go to Step 2.

Step 2: Clear costlier debts first

There is a golden rule for anyone with multiple debts - always focus on paying off the highest interest rate debts first.

The reason for this is simple. The higher the interest, the quicker the debt grows, so you want to get rid of it as soon as possible (see the Pay off debts with savings and Should I pay off my mortgage? guides for a full explanation).

With interest on these student loans currently so high, it's likely your mortgage interest is actually lower. However, with mortgages there's early repayment charges to consider, so in most instances it's probably still best to focus on the student loan if this is your only other debt. 

For all those with credit card or loan debt with a higher APR than 13.5%, focus on repaying those debts first.

Step 3: Overpaying is still a risk

The golden rule for overpaying is whether the interest on your student loan is higher or lower than the rate your money could earn in savings. At the minute it’s higher, so overpaying might make sense if you’ve cleared your other debts and are likely to clear your loan before it’s wiped.

But it’s still a gamble, if your income drops for example, you might have been better off not overpaying. So think carefully before doing it. If you think overpaying is the right option for you, then you'll need to get in touch with one of the three companies now collecting the loans:

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