Graduates will be repaying debt into their 50s

10 April 2014

Graduate debt has doubled to more than £44,000 on average since changes to tuition fees were made in 2012 - and most won't pay it off until their fifties.

While those in their twenties and thirties will on average pay less in repayments than under the old system, graduates who could previously have expected to repay their loans by their late 30s, now face being in their early 50s before they clear their debt.

Under the old system, nearly half of graduates would have repaid their debt in full by the age of 40. Under the new system, only about 5% will do the same and a whopping three-quarters will never pay back their loans in full.

For those who do repay into their fifties and do so in full, many professionals, such as teachers, will have to find anything from £1,700 to £2,500 a year more in loan repayments.

Researchers at the Institute of Fiscal Studies, which uncovered the figures, pointed out this will be at a time when their children are still at school and they have a mortgage to pay.

While student loan repayments now start at a higher level of income than before (£21,000 compared to £15,795), they now have a real rate of interest (of up to 3%), which means interest is charged from the first year of university.

This, along with the fact universities can charge more in tuition fees, has pushed the average loan to more than £40,000.

Social mobility

And while those graduates who earn the least during their lifetime will likely have most of their debts eventually written off by the government, David Hall, acting chairman of the Sutton Trust, which commissioned the research, said more must be done to help social mobility.

"The government should look again at the balance between fees, loans and government grants to universities. In particular, the government should consider reintroducing means testing for fee loans, in the same way that maintenance loans are means tested, reducing levels of debt for those who use higher education as a means of social mobility."

In a statement, a spokesperson for the Department for Business, Innovation & Skills said: "As a result of our reforms, a greater proportion of students from disadvantaged backgrounds are going to university than ever before.

"Most students will not pay upfront to study. There are more loans, grants and bursaries for those from poorer families.

"We have protected those on lower incomes by increasing the repayment threshold to £21,000 and our universities are now well funded for the long term."

However, Vivi Friedgut, of financial training company Blackbullion, added: “Today’s findings estimate that students will leave university with over £44,000 in debt, which is a staggering figure for individuals to owe, but it doesn’t take into account the additional debt students are accumulating on credit cards and overdrafts.

“Although this figure is over double the amount calculated earlier in the year at £20,000, it’s still not a true representation of the financial debt students are carrying after university. Additional debt incurred makes for eye watering figures later down the line as it’s not written off and gathers high interest.

“It’s this total amount of debt which university support services can play a crucial role in actively helping students to manage their money effectively. Universities need to make students aware of the total debt figure in order to properly address the financial hurdles individuals are encountering and provide effective support.”

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