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Most graduates to be repaying debt in their 50s

A majority of students will be repaying their student loans in their 50s, and nearly three-quarters may never earn enough to pay their entire debt off, according to a new study commissioned by the Sutton Trust.

The study, entitled ‘Payback Time?’ was conducted by the Institute for Fiscal Studies and published yesterday. It found that only 5% of graduates will have cleared their student debt by age 40, and that 73% will not be able to repay their debt by the end of the 30-year repayment period.

It found that because many more graduates will still be paying off their student loan in their 40s and 50s, they will be subject to far higher yearly repayments. That is, under the new system, between the ages of 22 and 30, graduates will pay on average £198 less per year as compared to the old system, but £1087 more per year between the ages of 41 and 51 (2014 prices).

Allowing for inflation and anticipated earnings growth, the report shows that under the post-2012 system graduates will on average pay an additional £14,510. In cash terms, the average graduate will repay more than twice what they would under the prior system.

Conor Ryan, Director of Research at the Sutton Trust, said, “There has been a lot said about the lower repayments that graduates make in their twenties under the new loan system, but very little about the fact that many graduates will face significant repayments through their forties, whereas many would previously have repaid their loans by then”.

He continued, “The new system will benefit graduates who earn very little in their lifetime. But for many professionals, such as teachers, this will mean having to find up to £2,500 extra a year to service loans at a time when their children are still at school and family and mortgage costs are at their most pressing. With recent revelations about the proportion of loans unlikely to be repaid, it seems middle income earners pay back a lot more but the Exchequer gains little in return. We believe that the Government needs to look again at fees, loans and teaching grants to get a fairer balance”.

Claire Crawford, of the University of Warwick, who co-authored the study, said, “The new higher education finance system will leave graduates with much more debt than before. But the effects of the changes will be quite different for different people and at different parts of their lives. Graduates who do less well in the labour market will actually end up paying back less than before, while middle and high earners will pay back much more”.

She continued, “In that sense, the system is more progressive and looks in many ways rather like a graduate tax. The size of the repayment threshold also means that graduates will generally pay back less during their twenties but much more later in their careers, especially when they are in their forties. Remarkably, almost three-quarters will have some debt written off 30 years after graduating”.

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