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Balancing Student Loan Debt with Retirement Savings

Student loan debt can seem overwhelming, but have you thought about how that impacts retirement savings? This flyer discusses the importance of balancing both needs.

It’s no surprise that paying off student loans can make a big dent in your daily finances. But have you considered what it’s doing to your retirement savings?

Each additional dollar in student loan debt decreases retirement savings by 35 cents. That means if you have $50,000 in student loan debt, you’re likely losing out on $17,500 in retirement savings.1

By age 30, graduates with student debt have an average of approximately $9,100 in 401(k) retirement assets, whereas graduates without student debt have twice as much saved, approximately $18,200, by age 30.2

46 percent of Millennials with student loans say student loans are significantly impacting their ability to meet other financial goals.3

Make no mistake – student loan repayment does require a strategy. At first, it might seem as simple as picking a repayment plan and writing the first check. But the decisions you make during the course of the loan can affect your ability to balance other short- and long-term savings goals.

For example, you could wind up in worse financial shape in the long run if you choose to pay off student loans ahead of schedule rather than saving for retirement.

That’s because retirement contributions typically offer tax breaks, company matches and future compounding that are worth far more than the interest saved by accelerated student loan repayment.

How can you focus on retirement savings when you’re worried about meeting this month’s debt payment?

First and foremost, don’t get discouraged! Paying down student loans while contributing toward your retirement is not only possible, but very doable, with the right strategy and a little bit of patience.

  • Know what you owe – make a list of your loans and their important details like the type of loan (i.e., Direct, PLUS, private), the balances and the interest rate for each
  • Start with the minimums – no matter what, you need to make the minimum student loan payments to avoid default, which could harm your credit score and lead to higher monthly payments and higher interest rates
  • Create a budget – distinguish between your wants and needs and look for ways to cut back on expenses so you can add to other savings goals
  • Consider consolidating – combine some or all of your student loans into a new loan so you’ll only have one payment to make each month. Plus, if you qualify for a lower fixed interest rate, consolidating could reduce your total monthly payment
  • Don’t leave money on the table – put enough money in your retirement account to get the full match offered by your employer; it’s free money!

1Two’s a Crowd: Are Retirement Savings Being Crowded Out by Student Loans?, Morningstar, March 2016
2 “Do Young Adults with Student Debt Save Less for Retirement?” Center for Retirement Research at Boston College, June 2018
3 Employee Financial Wellness Survey, May 2018