Freshers face repaying student loans into retirement under new 40-year term

Ffion White

by , PR Manager

10 Aug 2023 /  

Aug 2023


Students off to university for the first time this year could be the first crop of graduates who face repaying their university debts into retirement, according to PensionBee, a leading online pension provider.

This year’s Freshers will be the first to take out student loans on the new ‘Plan 5’ loan. On previous plans, debts are usually written off after 25 or 30 years, however with the new loan plans, any debt remaining would not be written off until 40 years from the April after someone leaves university.

This raises the possibility that today’s new students could find they are making the last of their student loan repayments from their pension income in future.

Repayments begin at a rate of 9% of earnings over £25,000 with the interest rate for Plan 5 loans currently capped at 7.1%, but subject to change. The new plan terms mean that many graduates taking out full loans from this year face the prospect that they will still be repaying their loan well beyond the current Normal Minimum Pension Age of 55 (rising to 57 in 2028).

Graduates who don’t leave university until their mid to late 20s could even be repaying their student loan once they are beyond the current State Pension age of 66, or even the future State Pension age of 68, which is due to come in between 2044 and 2046. However, it is possible the State Pension age will rise further after this, with a Government-led review suggesting it could be as high as 74 by the time this year’s Freshers reach their retirement years (1).

A full maintenance loan for one year for someone living away from home outside of London is £9,978 and would come to £29,934 for a three-year degree. For someone living away from home and studying in London, the full maintenance loan is £13,022 a year, or £39,066 for a three-year degree. Tuition fee loans are £9,250 a year. So the maximum someone taking out full tuition fees and maintenance loans for three years could owe if they study in London is currently £66,816, not including interest.

A graduate whose £30,000 starting salary increases by 2% a year for 40 years would be repaying the loan for the full 40 years - the total they would repay over the 40-year period would be £27,180 (starting at £450 a year and rising to £974 in the 40th year), with the rest written off. Even someone who started off on a higher graduate starting salary of £35,000, and experiencing the same salary increases, could face repaying the full loan for the maximum 40 years, managing to repay £54,361 in those four decades without managing to clear the total debt.

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. It might be a tax by another name, but the effect on disposable income is the same.

It’s no good saying that graduates won’t notice this extra financial burden and it won’t matter to them. With so many other cost pressures, such as high house prices and the need to save as much as possible for one’s own retirement bearing down on this generation, student loan repayments put an ongoing dampener on their prospects, including making it harder to get a mortgage and making it harder to retire well.”


  1. House of Commons Library

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