Retirement & Financial Planning Report

Paying off student loans in lieu of making retirement contributions has a big impact on retirement account balances over time. Image: FabrikaSimf/

Those with student loan debt on average save less for their retirement through employer-sponsored plans, resulting in lower savings in those accounts, according to a study by the Employee Benefit Research Institute.

In a look at such plans, it found that one-fifth of investors made student loan payments in at least one year of a three-year period and 12 percent made them in all three years. For those with incomes below $55,000, the average saving for retirement by those making loan payments was 5.3 percent of salary compared with 5.7 percent for those not making such payments. The difference for those with incomes above that level was 6.1 vs. 7.3 percent.

That in turn translated into a “significant impact” on account balances, it said, with those making above $55,000 and at least 12 years of participation having average balances of nearly $108,000 for those who did not make student debt payments vs. about $86,000 for those who did.

Also tellingly, it said, of those made student debt payments at the start of the studied period but who had stopped by the end, nearly a third increased their retirement savings rate by at least 1 percentage point afterward—with the increase somewhat larger among those with incomes below the $55,000 threshold.

The data used involved 4019(k)-type plans in general and not specifically the federal Thrift Savings Plan. However, TSP data consistently show that younger federal employees—who are more likely to have student loan debt—on average invest at lower rates than those who are older.

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