How Student Debt Impacts Retirement Savings

With the level of student loan debt nearly tripling between 2005–2017, as the number of college grads with loans and their average outstanding loan balances ballooned. But what kind of effect does student loan debt have on whether and how much they save for retirement?

A brief from the Center for Retirement Research at Boston College finds that college graduates do make out better financially than their colleagues who went to college but never got the degree.

However, if the former are carrying debt, they are nonetheless running behind graduates who have no student debt. In fact, grads with student debt “tend to have lower net worth and financial wealth,” says the report by Matthew S. Rutledge, Geoffrey T. Sanzenbacher and Francis M. Vitagliano.

Graduates with student debt are also living with the potential for falling behind on their debt payments and running a greater risk of bankruptcy, and their access to credit is curtailed by the debt they’re already carrying—thus making it harder for them to take such actions as buying a home.

But when it comes to retirement savings, does student debt hurt there too? The short answer is yes, the report says, based on data from the National Longitudinal Survey of Youth 1997 Cohort, which provides information on student loan debt among young borrowers.

The NLSY97 includes data on both graduates and nongraduates, the latter often not having any debt; as a result, the brief points out, grads make up less than half of the study field, but account for 71% of student debtors.

There isn’t a substantial difference in 401(k) participation between graduates and nongraduates. The size of the loan balance doesn’t make more than a minimal difference in participation, either.

What does make a difference—among graduates, that is—is that those with student loan debt have retirement balances about 50% lower than their colleagues who graduated without student loan debt, with the difference being “both large and statistically significant.” (Nongraduates, the brief says, have much less in retirement assets at age 30 than graduates.)

An interesting wrinkle is that the size of the loan doesn’t affect graduates’ retirement balances. Whether they owe a small balance, a medium-sized one or are laboring under a huge load of debt doesn’t make them save more or less; the presence of the loan itself apparently weighs on grads’ saving patterns.