Having a student loan reduces the amount college graduates set aside for retirement at age 30. College graduates who had a student loan at age 25 went on to have retirement plan [e.g., 401(k)] balances ranging between $9,000 (25th percentile) and $9,300 (75th percentile) at age 30. Savings for those in the 50th percentile were $9,100.
Graduates with no debt at age 25 were much further ahead on saving for retirement. Their average retirement plan balances at age 30 were $18,200.
The mere existence of a student loan has a negative effect on savings. Graduates with smaller outstanding loan balances had similar amounts as those with high loan balances. The study’s authors observe, “For graduates … assets are about 50 percent lower for those with student loans compared to those with no loans. The difference is both large and statistically significant. These results suggest that among college graduates, the presence of a student loan does impact retirement saving.”
Student loans affect the amount saved, but not participation in retirement savings plans. Between 61% and 62% of graduates with outstanding student debt at age 25 participated in a retirement plan at age 30. This is essentially even with the participation rates of the graduates who had no outstanding student debt.
It’s unclear what role other factors play. Demographic information included in the study show graduates with student debt earning less ($43,984 versus $47,931 for those without debt at age 30). These graduates also appear to have grown up in comparatively less affluent households. Parental income when these college graduates were age 18 was $66,593 for graduates with student debt versus $83,017 for those with no debt.
In all cases, having a college degree was associated with larger retirement savings relative to non-graduates. Retirement plan assets for non-graduates with no student debt was $5,400; savings were less for those with debt. Retirement plan participation rates were lower as well.
The statistics were gathered from the NLSY97 dataset. The NLSY97 is a survey conducted by the Bureau of Labor Statistics of approximately 9,000 youths who were 12 to 16 years old in 1997. Participants continue to be interviewed on an annual basis.
“Do Young Adults With Student Debt Save Less for Retirement?;” Matthew Rutledge, Geoffrey Sanzenbacher and Francis Vitagliano; Center for Retirement Research at Boston College; June 2018, Number 18-13.
Financial Planning
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