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Personal loans for students

Should you pay off student debt with a personal loan?

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Personal Loans

  • Not like student loan debt
  • Student loans more like a tax
  • The rules are quite different

Loans for Students

We have a lot of students coming to our website looking to see if they should pay off their student loan (tuition fees and maintenance loans) with a personal loan. [note: if you need a small cash loan click here]

However, there are major differences between standard debt and student debt (see the right hand panel). It is easy to become concerned about accumulating student debt allied to a headline interest rate of RPI + 3%.

So, what should you do?

Student Loans are different:

  • You only repay once you're earning enough
  • Your repayments only rise if your earning rise
  • If you lose your job your repayments stop
  • Debt is wiped out after 30 years

Why Student Loan debt is not like a Personal Loan

Personal Loans

With a personal loan you borrow a specific sum of money for a specific period and commit to making monthly repayments to clear the debt by the end of the agreed period.

It always pays to settle debt as quickly as possible so as to minimise the interest costs. So if your loan terms allow it, and you have the cash, you can make over-payments or pay off the loan early with one lump sum. Your repayment behaviour is reported to the UK's credit reference agencies and helps determine your credit rating and future terms you may get for credit.


Student Loans

The basics of a student loan:

  • Your debt can include study fees and living expenses.
  • Interest starts accruing as soon as the money arrives in your account
  • The interest rate is the same for all students - it does not depend on your credit rating
  • Your repayments and your loan details are not reported to credit reference agencies
  • Repayments only start once your income reaches £21,000
  • You will only pay back 9% of whatever you earn over £21,000
  • 30 years after graduating any remaining debt is written off - you can forget it.
Learn about Personal Loans

So, you can see that the mechanics of the two types of loan are quite different. In the case of student loans there are numerous uncertainties and unknowns and so it is impossible to calculate at the start of your university course precisely how much debt and interest you will become liable to pay, but also how much you will actually be required to pay over the next 30+ years. Commentators suggest rethinking what a student loan is. It is not so much a loan (that generates interest charges and requires repayments) than state funding triggering a "graduate contribution" linked to income.

It makes it very hard to know whether it is sensible to pay off your student loan early with a personal loan. In any case the Institute for Fiscal Studies estimates that under the current student loan system over 70% of students will never pay back their loan in full.

Should you pay off your Student Loan early?

Unless you graduate and get a very high paying job immediately there is a relatively low chance of ever having to pay off your student loan in full. Keep this fact in mind.

If you have spare cash then it would almost certainly make more sense to pay other "commercial" loans off first before worrying about your student loan. So, if you are already debt-free should you pay off your student loan?

Even in this scenario the consensus in the media seems to be No! Don't!

Basically the interest terms on a student loan are still generous and if you have spare cash then it's almost certainly the case that you can put it to better use elsewhere.

The full argument seems to be - forget what you've borrowed; ignore the implied interest rate - the only real cost is going to be an additional tax of 9% for 30 years. To see a good argument for not repaying your student loan read this Financial Times article.

So, on balance don't swap your student loan for a personal loan - probably!

All About Personal Loans

Representative Example

Loan Amount


Monthly Repayment


Loan Term

48 mnths

Total Repayment


Representative APR


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