Should You Pay Off Your Child's
Student Loan?
Student loans work differently from other debt. Before you clear one, it's worth understanding when early repayment actually helps, and how gifting can fit within inheritance tax planning.
"Should we just clear our child's student loan?" It is one of the most common questions we hear from parents, and the answer is rarely as simple as it first seems.
The instinct is understandable. Most parents want to help their children start adult life on a stronger financial footing, and removing debt feels like an obvious way to do that. But a UK student loan is not like a mortgage or a personal loan. Repayments are linked to income, collected through payroll, and any remaining balance is eventually written off after a set period. Many graduates never repay the full amount.
This means the decision is not simply about removing debt. For families with significant assets, the more important question is whether repaying the loan creates a genuine financial benefit, or whether that capital could work harder elsewhere, as part of the wider family plan.
This has become more pertinent recently. From September 2026, interest on Plan 2 and Plan 3 loans is capped at 6%, but that is still a meaningful rate on a large balance. Repayment thresholds have been frozen, and from April 2027 unused pension funds are due to fall within estates for inheritance tax. The interaction between a child's loan, a family's surplus capital, and estate planning is worth thinking about carefully.
INSIDE THE GUIDE
What You'll Learn
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How the five UK loan plans work, including 2026/27 thresholds, interest rates and write-off periods.
Whether early repayment makes sense, and the situations where it may or may not be worthwhile.
What repayments actually cost, with worked examples of monthly deductions at different salaries.
How gifting interacts with inheritance tax, including potentially exempt transfers and gifts from surplus income.
The exemptions worth using first, from the annual allowance to gifts for weddings.
A practical framework for weighing the decision within your wider family financial plan.
Common Questions
Student Loans and Repayment: FAQs
Should I pay off my child's student loan early?
It depends on whether the loan is likely to be repaid in full before it is written off. For a consistently high earner, early repayment may reduce total interest. For a graduate whose loan is likely to be partly or wholly written off, repaying early may mean paying money that would never have been collected. The loan plan and future earnings matter more than the current balance.
How much is deducted from a graduate's salary?
Repayments are a percentage of income above a threshold, not a figure based on the balance. On Plan 2 in 2026/27, a graduate earning £40,000 repays 9% of the income above the £29,385 threshold, roughly £80 a month. Someone earning £30,000 repays around £5 a month. The figure rises with income, not with the size of the debt.
Can paying off a student loan help with inheritance tax?
For families whose estate may be exposed to inheritance tax, gifting money to help with a loan can serve a dual purpose. A one-off gift may fall outside the estate after seven years as a potentially exempt transfer, and regular gifts from genuinely surplus income may be immediately exempt. The treatment depends on individual circumstances and should be confirmed with a qualified adviser.
Is it better to invest the money instead of repaying the loan?
Possibly, but the two are not directly comparable. Loan interest is a known cost, while investment returns are not guaranteed and capital is at risk. Any potential growth has to be weighed against the interest that continues to accrue on the loan. There is no universal answer, and the right approach depends on the individual's circumstances and objectives.
When is a student loan written off?
It depends on the plan. Plan 2 loans are written off 30 years after the graduate becomes liable to repay. Plan 5 loans, for students starting from August 2023, are written off after 40 years. Because of this, a significant proportion of graduates never repay their loan in full.
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This page is for general information and education only. It does not constitute personal financial, tax or legal advice, and no action should be taken solely on the basis of its contents. The value of tax reliefs depends on individual circumstances, and tax and student loan rules are set by Government and subject to change. Investment returns are not guaranteed and the value of investments can fall as well as rise. You should seek advice tailored to your own circumstances before acting.