Why delaying student loan repayments benefits everyone
Delaying student loan repayments could ease early‑career pressure, boost financial security and strengthen the wider economy – all without costing taxpayers more.
In 30 seconds
Student loans demand repayment when graduates earn least, forcing them to delay savings, limit career choices and take on financial risks that undermine long‑term stability.
Delaying repayments by a decade lets young adults build safety nets, save for housing and make better career decisions, dramatically improving lifetime financial wellbeing.
With fewer defaults and lower systemwide risk, deferred repayment boosts individual welfare and strengthens the wider economy – all without costing taxpayers more.
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Student debt has become a defining feature of early adulthood. In the UK, the US, and globally, borrowing has risen sharply, enabling more people to pursue higher education but also reshaping how young adults begin their financial lives. For Francisco Gomes, Professor of Finance at London Business School, the issue is not simply the existence of student loans – it is the timing of their repayment.
Speaking with host Katie Pisa on The Why Podcast, Francisco argues that current systems impose the greatest financial pressure precisely when graduates are least equipped to manage it. Early careers are characterised by lower incomes, limited savings and significant uncertainty. Yet this is the moment when repayment obligations hit hardest.
The early career squeeze
Francisco notes that the average graduate’s income almost doubles – in real terms – over the first 25 years of their career. In their twenties and early thirties, however, income is relatively low, living costs are high and major life decisions begin to take shape. Many are saving for a first home, absorbing rising rents or mortgages, or planning for a family. At the same time, they face the highest risk of unexpected financial shocks – job changes, unstable contracts, or unforeseen expenses.
Despite this, most student loan systems require repayment to begin immediately after graduation. “These are the years when pressures on income are highest,” Francisco explains, “and when individuals most need to build a financial buffer.” Instead of saving, young people are compelled to divert a sizeable portion of their income towards debt – often delaying wealth building for years and narrowing their career choices.
How repayment timing changes behaviour
This pressure has real consequences. In the US, research shows graduates frequently take higher paying jobs that are less aligned with their long-term interests the moment repayments begin. In the UK, income contingent thresholds can push people to decline promotions to avoid triggering higher repayments. Both outcomes distort career paths, reduce economic productivity and restrict social mobility.
The evidence is striking: within five years of graduation, around a quarter of US borrowers experience some form of delinquency on their loans. These early years, Francisco emphasises, are exactly when financial instability is most acute.
Why delaying repayments works
Francisco’s research explores a deceptively simple policy idea: defer student loan repayments for the first 10 years of a graduate’s working life, shifting repayments into later years when incomes are higher and savings cushions stronger.
Under this approach, graduates would spend their twenties building financial resilience – saving for emergencies, contributing to pensions earlier, and pursuing better long-term career options. When repayments eventually begin, they would be more affordable, less risky and far less likely to cause financial distress.
“Our policy, is essentially a policy that has no fiscal cost at all. It is just about shifting the timing of the payments”
Crucially, Francisco stresses that this proposal does not increase the overall fiscal cost of the student loan programme. It changes only the timing of payments, not their total value. Yet the benefits could be substantial:
Significantly lower default and delinquency rates, reducing costs for public lenders.
Higher long-term wealth accumulation, as young adults save earlier and avoid expensive short-term credit.
Reduced distortions to labour market decisions, supporting better job matching and higher productivity.
When compared to high-profile proposals for student debt forgiveness, Francisco’s analysis finds similar welfare gains – but without requiring taxpayers to absorb large write-offs.
“Our policy, is essentially a policy that has no fiscal cost at all. It is just about shifting the timing of the payments,” said Francisco.
A smarter, simpler way forward
For policymakers, the implication is clear: the structure of student loan repayments may matter more than their size. By allowing young graduates to establish financial stability before repaying their loans, governments can support individual wellbeing, reduce systemic risk and strengthen the wider economy.
As Francisco puts it, the idea is intuitive. Pay when you can better afford to pay. And in the long run, everyone benefits.
