"For millions born this century, the burden of a student loan is replacing the aspiration of a mortgage"
This year’s graduates will spend 24 years on average both paying off their student loan and paying into pensions, before their student debt is balanced entirely by pension wealth – even assuming a starting salary of £25,000 and a trajectory of above-inflation wage growth.
The average graduate starting work this summer will only see the value of their pension crossover with the value of their student loan at the age of 45, with both sums in the region of £60,000.
Throughout their thirties and forties, the average graduate today will only see their student debt rise, with a peak student debt of £60,200 at the age of 40 (even after adjusting for inflation, i.e. in 2017 prices). Only at this point will repayments begin slowly to outpace the interest accrued each year.
This summer’s newly qualified graduates will begin work making average student loan repayments of £29 per month, rising to an expected £64 per month at the age of 25 and £109 every month by the time they reach 30. Beyond this repayments will only continue to rise until student loans are written off after thirty years – with the monthly bill peaking at £460 per month in nominal terms, when today’s 21-year-olds reach their 50s.
Today’s graduates will also begin working life paying a similar amount automatically into auto-enrolment pensions, starting with just £13 per month and rising to £108 paid into pensions automatically by the time they are 30. But thereafter their pensions contributions will be overshadowed by student loan repayments for twenty years. At the age of fifty, automatic pension contributions will represent less than half the average monthly student loan repayment.
Without making any additional retirement savings, in this scenario the average 2017 graduate will face a monthly net income in retirement (at the age of 70) of just £487 per month in today’s terms, after adjusting for expected inflation.
Anthony Morrow, CEO of evestor, commented: “For millions born this century, the burden of a student loan is replacing the aspiration of a mortgage – while lingering fears from the financial crisis risk turning people away from investing in their future. Generation Z risks becoming short-hand for Generation Zero-Wealth.
“But this is not inevitable. Young people are generally right to invest in their education, not least because a degree can boost earnings potential. A better salary is still a better situation. And regardless of income, almost anyone can improve their financial prospects by taking the right steps and having a plan."
