Student debt is a fairly modern issue, with graduates today often leaving university with both tuition and maintenance loans to repay. Together, these form a student loan balance.

According to the Guardian, graduates now leave university with just over £50,000 in loan debt alone. Data also shows that about 180,000 graduates now owe more than £100,000. This debt will need to be repaid via your child’s earnings, if it meets specific criteria (more on this later). In turn, they could take home less and find it harder to meet important life goals.

If your child or children have left university with significant loan debt, then you might consider paying this off to help them get a better start in life.

Before you agree to this, it’s a good idea to look carefully into whether it’s a good course of action, or whether other financial help may be more beneficial.

Read on to find out more about the pros and cons of clearing your children’s university debts.

Student loan debt is written off if it remains unpaid after a specified number of years

Student loan debts are different to other types of debt. While the balance will increase with interest, the size of the outstanding debt doesn’t determine the nature of the repayments. Instead, this is dictated by income.

Also, unlike other forms of debt, if the outstanding balance isn’t cleared after a period of time, it will be written off.

According to the Department for Education (DfE), just 55% of students starting in the academic year 2025/26 will pay off their loans in full.

In England, the two common undergraduate student loan plans for more recent graduates are Plan 2 and Plan 5.

Plan 2

This was generally for students who started university between 2012 and 2023. The repayment threshold begins at an income of £29,385, at which point 9% of their salary above this amount is deducted.

Interest is applied from the first day of the loan payment at a rate of RPI+3% while the student is at university and until the April after they leave. From there, interest is earnings-dependent, with lower earners charged RPI and higher earners charged RPI+3%. However, interest rates are capped at 6% until 31 August 2027.

This type of loan is written off after 30 years.

Plan 5

This plan was introduced in 2023 and has a frozen repayment threshold of an income of £25,000, again at 9%. Interest is applied at RPI, regardless of earnings.

This loan is written off after 40 years.

The pros of paying off your children’s student debts

1. The total amount paid could be reduced

Once the loan is repaid, interest is no longer applied, so the earlier the debt is cleared, the less you could end up repaying in total.

2. Your children’s take-home pay will increase

Without repayments deducted from their monthly income, your children will be able to take home a larger portion of what they earn.

3. Your family can focus on other financial milestones

The money previously used for loan repayments could now be diverted towards other financial goals, such as saving for a house or getting married, or towards savings, investments, and pensions.

4. It could free them from financial uncertainty

Removing the student debt can often boost financial confidence, as your children will no longer have to consider how their debts will be impacted by pay increases, for example.

The cons of clearing student debt

1. You could end up paying more

Your child could feasibly never pay their loan in full before the balance is written off. If you clear the loan for them in full, you could be paying a significant amount more. This is especially valid if their earnings are low, and clearing their loan wouldn’t increase their take-home pay.

2. Your own financial security could be compromised

Student loan repayments are calculated on income and are spread over a long period of time. Clearing the entire balance using your own money could leave a large dent in your wealth. It’s also worth remembering that once you’ve paid off the loan, you can’t reclaim these funds further down the line or in an emergency.

3. Repaying other debts could be a more sensible approach

If you or your child have other debts with conventional repayment systems and no ultimate write-off, it could make more sense to prioritise repaying these over and above clearing student debt.

4. You could put the money to better use for your children

It may be that your children can financially withstand making their loan payments, but would welcome support with other costs, such as:

  • A deposit on a house
  • School fees for your grandchildren
  • Mortgage payments
  • Payments into their pension.

Alternatively, you could help them with their monthly loan repayments, rather than paying the whole lump sum, again ensuring that you’re not paying more than necessary.

Get in touch

Paying off a student loan needs careful consideration. There is always a risk that you could end up paying more than necessary. However, if your child is a higher earner, then paying off their loan could make sense.

Financial planning can help you weigh up all your options and decide which is the right course of action. We’re always happy to help, please email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning.