High student loan costs ‘hit pension savings’

Graduates should prepare for shortfalls in their pension savings of tens of thousands of pounds as a result of steep student loan repayments, analysis suggests.

Since 2012, universities have been able to charge tuition fees up to £9,000 a year, rising to £9,250 from 2017, leaving the average student with around £50,000 of debt.

Experts predict that three quarters of people will not pay off their loans before the debt expires after 30 years. Despite this, most graduates will repay far more than the initial value of their loans – to the detriment of their long-term wealth.

Analysis from Royal London, the mutual insurer, found that recent graduates could retire with pension pots as much as a fifth smaller than those of previous generations, leading to a £44,000 loss of income over a typical 25year retirement.

A non-graduate earning around £17,500 a year (the average salary of school leavers) would end up with a pension pot of £85,000 at retirement, said Royal London.

This compares with £185,000 for someone on a graduate salary (around £35,000) but without any student debt.

However, someone on the same salary but with a £40,000 student loan would save only £150,000 over their lifetime. That £35,000 gap equates to a £1,750 fall in annual income for the graduate with a loan.

The analysis assumed that the graduate with no debt put half of what they would have spent on loan repayments into a pension instead.