Does student loan debt affect Millennial’s ability to save for retirement?

Student loan debt has been a growing concern in the nation. In fact, between 2005 and 2017 student loan debt tripled, according to a new report from the Center for Retirement Research at Boston College.

The average student loan debt for Class of 2017 graduates was $39,400, up six percent from the previous year, according to the website Student Loan Hero. Americans owe over $1.48 trillion in student loan debt among about 44 million borrowers. That amounts to about $620 billion more than the total U.S. credit card debt, the website says.

That leads to the question: Is the heavy student loan debt burden keeping Millennials from saving, especially for retirement.

“Student debt, of course, has clear benefits.” according to the report, Do Young Adults with Student Debt Save Less for Retirement.  “It helps individuals pay for a college education, putting those who finish their degree on track to earn more over their careers. But student loan payments leave young adults entering the workforce with less money available to save.

“Even if the payments are manageable, the lingering presence of a student loan may loom large over other financial decisions, including retirement savings.”

Among the report’s findings:

  • College graduates fare better financially than those who attend college but do not graduate.
  • Graduates without student debt tend to have better financial outcomes than those with student debt. (Those with debt tend to have lower net worth and financial wealth.)
  • Larger amounts of student debt are also associated with greater credit constraint, an increased likelihood of falling behind on debt payments and a greater risk of bankruptcy.

Here’s where the report’s results start to surprise. Participation in 401(k) remains about the same for all the Millennials. There is virtually do difference between young workers with or without student loans, nor by the size of the loans, the report says.

“In the case of student loan size, participation rates among graduates with low, medium and high loan balances are nearly identical,” the report says.

But that does not mean everything is rosy. While participation in a 401(k) does not seem to be affected by student loan debt, retirement wealth accumulation may be affected.

For college graduates, “assets are about 50 percent lower for those with student loans compared to those with no loans,” the report says. “The difference is both large and statistically significant. These results suggest that among college graduates, the presence of student loan does impact retirement savings.”

One interesting fact: college graduates with small loans had no more in retirement assets that those with large loans. “The results suggest that among college graduates, the presence of a student loan does impact student saving.”

The authors of the report say in conclusion that the results of the report were “mixed.” “While student loans appear to have no effect on participation (in 401(k) plans) and no significant effect on the asset accumulation on non-graduates, graduates with student loans accumulate 50 percent less retirement wealth by age 30.

“Interestingly, graduates’ retirement plan assets are not sensitive to the size of their student loans, suggestion that the simple presence of a loan looms large in their financial decision making.”

This article is for informational purposes only and is not intended to provide any specific advice.