Save, make, understand money

Credit Cards & Loans

Students could be repaying loans into retirement age

Nick Cheek
Written By:
Nick Cheek

Students who are starting at university this year could face repaying their debts into retirement, a leading online pension provider has said.

According to PensionBee, a fair proportion of this year’s intake of university students could be pensioners by the time they finish repaying their student loans.

This year’s freshers are to be the first to take out loans under the new ‘Plan 5’ loan. Under previous plans, student debts were written off after 25 or 30 years, whereas now loans are to be cancelled 40 years from the April after someone leaves university. Potentially students from this academic year could find that they making student loan repayments from their pension incomes.

The terms of the Plan 5 loans are that repayments begin at a rate of 9% on earnings over £25,000, with an interest rate that has been currently has been capped at 7.1%, but this may change.

Many graduates who are taking out the full loans this year face the likelihood of paying their loans beyond the current normal minimum pension age of 55, which rises to 57 in 2028.

Those who do not finish their degrees until they are in their mid- to late-twenties could be paying back their loans beyond the latest state pension age of 66, or even past the future state pension age of 68 which is due to come in between 2044 and 2046.

How much can students borrow?

A full maintenance loan for an academic year for someone living away from home and outside of London is £9,978, which totals£29,934 for a three-year degree course.

For a student who is at a London university, the full maintenance loan rises to £13,022 a year or £39,066 over three years.

Tuition fee loans are £9,250 a year.

Overall and not including interest, the maximum that someone could owe if they were to study in the capital is £66,816.

How long would it take an ‘average earner to pay off’ their loan?

PensionBee calculated that a graduate with a starting salary of £30,000 that increased by 2% over 40 years would repay their loans for the full 40 years.

In total, someone would repay £27,180 over that period of time, with any remaining debt amount to be written off.

A graduate who started off at a higher salary of £35,000 with the same 2% annual salary increase, could also repay the full loan for 40 years, managing to repay £54,361 without clearing the total debt.

Students may have to work longer

Becky O’Connor, Director of Public Affairs at PensionBee, said: “Student loan repayments are likely to stay with graduates throughout their whole working lives and even beyond, into the retirement years. Meeting repayments for the full 40 years could force people to stay in work for longer.”

“Not only is a 40-year term pressing the boundaries of working life, it’s also denying graduates a significant chunk of their earnings that they might otherwise put towards a property or perhaps a bigger pension, to keep the dream of giving up work one day alive.

“The Government needs to get creative with solutions to the problem of student loans negatively affecting the rest of graduates’ financial lives. The interest rate saddles those who choose the university path with costly debt for life.”