Expat graduate dilemma puts pensions before student loan repayment

Published:  24 Jul at 6 PM
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Thousands of university students will graduate this year, with many taking their hard-earned degrees overseas to a long-term job in a new country.

With Brexit looming and British companies backing off from hiring graduates due to uncertainty, a good number of newly-qualified Brits may well be searching for opportunities elsewhere in the world. At the back of their minds will be the dilemma of paying off a massive student loan or beginning to save for their eventual retirement, with very few able to deal with both.

At first glance, the choice is simple – either pay into a workplace or private pension or begin paying off the cost of a university education. However, recent research reveals the decision isn’t quite that straightforward, as giving up on pension payments until student loan debts are cleared will mean a reduced pension unable to cope with inflationary pressures between now and the distant future. Therefore, graduates heading out into the expat world should remember that, should their student loans not be repaid in 30 years, they will be written off, although the thought of being heavily in debt for such a long period of time may be scary for many.

However, number-crunching may help to alleviate fear, especially if you’re working overseas long-term as an expat. Basically, graduates with average incomes putting by the minimum amount over their years of employment can expect pension savings of around £148,000, but will not have been able to clear their student loan debt. Those opting to clear the debt will do so in around 21 years, but those who start saving immediately afterwards will only have amassed some £7,300, giving them a paltry £3,750 a year during retirement.

Graduates lucky enough to get twice the average salary will still be some £50,000 short of a decent pension due to the loss of employer contributions even although they will have paid off their student loans in 17 years. It seems that repaying the student loan is, therefore, a huge mistake for the vast majority and will almost certainly result in financial hardship in retirement.
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