Balancing Student Loan Debt and Retirement Savings

  • Student loan debt vs. retirement savings. For many people, these costs compete; though, repaying immediate debts often beats saving for the (distant) future.
  • While public policy and private sector solutions are making strides in enabling people to achieve both objectives, many still struggle with this financial friction, experiencing significant stress leading to poor health and reduced productivity in the workplace.
  • For employers seeking to improve employee financial wellness, we’re offering 3 approaches to smooth the repayment vs. retirement rub.

Danielle A Gladstone

U.S. employees of all ages are grappling with a major obstacle to achieving retirement readiness: student loan debt.  The nation’s student debt soared past $1.5 trillion this year, putting many workers behind on their financial goals and, in the worst cases, at risk of defaulting on their loans.i

The average college graduate in 2016 left school carrying more than $30,000 in student loan debtii at an average monthly payment of $351.iii For many young people, the pressing need to pay student loans causes them to delay or forego saving for retirement. As they direct their savings dollars toward student loan payments, they miss out on the potential compounding benefits of saving early, as well as any employer matching funds.

Meanwhile, many older employees dip into their retirement savings to pay for a child’s tuition, or they reduce or stop their 401(k) contributions to pay off their kids’ student loans.

Burdensome student loans also present challenges for employers, as employees struggling to balance their financial priorities can succumb to significant stress and health problems, conditions that can trigger low productivity and absenteeism.iv In addition, the effort to make timely student loan payments coupled with a failure to contribute to a company-sponsored 401(k) plan may result in delayed retirement for many.

This dynamic can drive up workforce costs, as companies pay higher salaries, pass up new talent and face high turnover rates among younger workers who lack opportunities to advance.

Plan sponsors have an opportunity to improve this situation, while also strengthening their workforces. After all, a leading reason that people switch jobs is the chance to work somewhere that offers better benefits.v While the rate at which Americans quit their jobs has hit a 17-year highvi, offering benefits such as student loan assistance can help employers remain competitive in the job market, attract top talent and earn employees’ loyalty.  Taking a paternalistic approach to financial bbenbenefits goes a long way with benefits goes a long way with millennials in particular, with 56% admitting they feel more loyal to their employer if the employer demonstrates care about their financial well-being.vii

New solutions for student debt

Between policy changes, proposed legislation and technology solutions, plan sponsors and employees may soon have access to a number of tools to help address student debt.

The IRS this year approved a plan sponsor’s student loan repayment benefit as an add-on to its 401(k) plan.viii Under this plan, employees who are making student loan payments can still receive employer matching contributions, as long as their loan payments equal the match threshold. This approach is aimed at accomplishing two goals at once: Workers can pay off student debt and, with the help of the employer, grow their retirement savings. The ruling may open the door for other plan sponsors to add loan repayment options to their defined contribution plans.

On the legislative side, a 2016 bipartisan effort was proposed to help vulnerable graduates avoid defaulting on their student loans through income-driven repayment plans.ix This year, a similar legislative proposal was introduced aimed at creating easy access to affordable, income-based repayment plans for federal student loan borrowers.x

Meanwhile, the private sector is also developing solutions for the student loan dilemma, with a host of startups embracing the challenge. For example, one young firm has developed software to help employers deliver student loan
repayment benefits with a goal of wiping out $30 billion in student debt by 2021.xi

While lawmakers and innovators hatch more formal solutions, plan sponsors can take immediate steps to help employees get out from under the strain of student loan debt. Here are three ideas employers can implement now to empower employees who are struggling with debt:

1. Offer educational seminars and one-on-one financial coaching.

Many younger workers have borrowed without understanding the implications of doing so, unwittingly putting their financial and emotional wellbeing at risk. Likewise, older workers’ retirement savings may be compromised as they borrow or intend to borrow for college-bound children. Targeted education and counseling can be beneficial for employees overwhelmed by student debt. A personalized, tailored approach like one-on-one financial coaching can be effective in helping employees sort out competing financial priorities and improve their overall wellness in a private setting.

Millennials value wellness programs in the workplace as much as, if not more than, their generational counterparts.xii  Since they engage well with digital resources, an educational webinar could appeal to younger workers who want the convenience of gaining insight from the comfort of their desks.  Make it interactive to instill a sense of community – participants will see that they’re not alone in the struggle. Have a fellow employee who successfully paid off their student loans talk about their experience and share tactics for managing debt while contributing to retirement.

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2. Run a savings campaign. Many employees underestimate their ability to save.  Sometimes all they need is a nudge. By simply reinforcing plan features such as the company match or automatic escalation, employers can help plant the savings seed among reluctant or discouraged employees. Highlight the benefits of saving and explain why increasing contributions even by small amounts can make a big difference. In addition, plan sponsors might consider using a strategic approach by targeting employees aged 30 and under who are most likely to be dealing with student debt.  Make the campaign fun by modeling it after something relatable like a fitness bootcamp, where employees can track their progress and compare with peers.

3. Encourage peer-to-peer conversations. Workers often trust friends and family for guidance on personal finance. For millennials in particular, friends and family outrank investment advisors and independent planners when it comes to seeking out financial advice and education.xiii But not everyone is a financial expert. Plan sponsors can help aid these conversations by providing talking points or self-guided exercises that allow employees to learn from and support one another in financial goal-setting and decision-making.xiv For employees who are paying off student-loan debt, saving enough for retirement may be a goal they can’t reach without a boost. The help plan sponsors provide can make a significant difference in workers’ lives, resulting in less stress, greater financial health and better productivity in the workplace.

Balancing Student Loan Debt and Retirement Savings


i Federal Reserve, Historical Data: Consumer Credit – G.19.

ii Prudential Insurance Company of America, “Student Loan Debt: Implications on Financial and Emotional Wellness,” May 2017.

iii Capstone Wealth Partners, “2018 Student Loan Debt Statistics” July 11, 2018 

iv [n] (ii) Prudential.

v Glassdoor press release,

“Glassdoor Survey
Find More Employees Expected to Quit in Upcoming Year, With Salary Cited As Top
,” January 2018.

vi Katia Dmitrieva, Bloomberg, “U.S. Job Openings Hit Record, Quit Rate Reaches 17-Year High,” September 2018.

vii PwC, “Employee Financial Wellness Survey,” May 2018 [p. 9].

viii IRS Ruling

ix U.S. Sen. Ron Wyden’s Office, press release: “Wyden, Bonamici Announce Bipartisan Effort to Prevent Student Loan Defaults,” August 2017.

x U.S. Sen. Jeff Merkley’s Office, press release: “Merkley, Sentate Democrats introduce legislation to ensure affordable student loans for every borrower,” October 2018.

xi website, company About page.

xii [n viii] PwC [p. 9-10].

xiii Ibid.

xiv Consumer Financial Protection Bureau, “Financial Wellness at Work,” August 2014.


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