How Student Loan Debt Impacts Retirement Savings

The Financial Wellness/Student Debt Connection

If your workforce includes recent college graduates, it’s likely that some of them  have debt  associated  with their college years. Student debt  may play a large part in the finances of these  young (and even not-so-young)  employees; that’s why a complete  picture of employee financial wellness should consider it. In addition,  carrying student debt may play a role in how much workers are saving for their eventual  retirement. Both of these are good reasons  for employers to take an interest in the impact of student debt on their workforce.

The amount of student debt  nearly tripled between 2005  and 2017, according  to a recent  study. While employees and employers alike may benefit  from a workforce with more education and a higher percentage of college degrees, each may also experience negative results from the debt that often accompanies a degree.

Among individuals studied for the report there were two important, and perhaps obvious, findings. First, college graduates are better off financially than  are peers who attend college but do not graduate.

And second, those who graduate without debt experience better financial outcomes than those who have debt.

Little Impact on Participation, but What About Account Balances?

What is the effect on 401(k) savings for each group?  On the surface, it appears the answer  is “not  much,”  at least in terms of 401(k) plan participation. Young workers with student loans tend  to participate in available plans about as frequently  as do those without such loans. Even the size of the student loan does not seem to impact participation much.

However, for those  at the age of 30, there  was a difference  in the amount of retirement savings between the groups.  Individuals with loans but no degree had saved less in a retirement plan at age 30 than did the group who graduated. (In fact, this was the case for people with no college debt, too, whether or not they had graduated; retirement plan assets at age 30 for graduates without debt  reached  $18,200 on average, compared to $5,400 for those without  a degree and no student debt.)

For workers with the smallest amount of student debt  — those below the 25th percentile  — retirement savings averaged  $9,000 for graduates and $5,100 for non-graduates. Across the board, the numbers were similar for workers who had graduated: those in the mid-range  of student debt  had saved $9,100 for retirement, and those with the largest amount of student debt  had put aside $9,300. Non-graduates had not saved as much. Those in the middle had set aside $3,600 and those with the greatest amount of student debt but no degree  had saved just $2,200 for retirement.

Based on those  savings figures at age 30, it appears  the amount of student debt  has less of an impact on retirement accumulations than  does the mere presence  of the debt.  This suggests  that workers are often  mindful of their debt,  and that  it factors heavily into their decision to save — or not. Employers can use this information  to educate employees  about  financial wellness, paying close attention to communicating about  how to pay off debt.

Learn more about  student debt  and its impact on 401(k) savings in the paper from the Boston College Center  for Retirement Research,

Web Resources for Plan Sponsors

Internal Revenue Service, Employee Plans

Department of Labor, Employee Benefits Security Administration

401(k) Help Center



Plan Sponsor Council of America

Employee Benefits Institute of America, Inc.

Employee Benefit Research Institute

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© 2018  Kmotion, Inc. This newsletter is a publication  of Kmotion, Inc., whose role is solely that  of publisher.  The articles and opinions in this publication are for general  information  only and are not intended to provide tax or legal advice or recommendations for any particular situation  or type of retirement plan. Nothing in this publication  should be construed as legal or tax guidance, nor as the sole authority  on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors  should always consult the plan’s legal counsel or tax advisor for advice regarding  plan-specific issues.