Student loan debt, that mortal enemy of retirement savings, is showing no signs of slowing its assault on workers ability to contribute (or contribute more) to their 401k.
A trio of new surveys illustrate the hardships student loan debt is causing would-be retirement savers.
TIAA and MIT AgeLab’s study, “Student Loan Debt: The Multigenerational Effects on Relationships and Retirement,” found the overwhelming majority of respondents with student loans (84%) say their debt is negatively affecting the amount they are saving for retirement.
Among those who are currently not saving at all for retirement, one in four say it is because of their student loan debt.
Three-quarters of survey participants (73%) are putting off maximizing their retirement savings, saying they expect to begin or increase their contributions once their student loans are paid off. Not surprisingly, study participants with higher current student loan debt balances tend to possess less retirement savings.
Meanwhile, according to TD Bank’s Student Debt Impact Survey released Aug. 8, today’s young adults say their student loan payments have a dramatic impact on their day-to-day finances and put their longer-term financial health in question.
The average total student debt held by those surveyed (1,000 Americans who paid off or are currently repaying student loan debt, ages 18-39) is $26,495, with the average debt payment at $579 a month. With a reported average monthly take-home pay of $2,689, that means on average one-in-five dollars of their take-home pay is spent on repaying student debt.
The findings clearly show that debt for higher education is significantly affecting consumers’ current and future financial security.
And then you have T.Rowe Price’s 2019 “Parents, Kids & Money Survey,” which found many parents say college costs aren’t their responsibility and aren’t prepared to pay, but most kids expect them to cover the cost.
Still, the survey found more than half of parents say saving for their kids’ college is a higher priority than saving for their own retirement.
What follows is a closer look at some key findings from all three surveys.
TIAA-MIT AgeLab survey
The MIT AgeLab survey sponsored by TIAA and released July 30, cites research indicating more than 44 million people in the U.S. carry student loans for themselves or a family member with outstanding debt among borrowers estimated at nearly $1.5 trillion.
This debt impacts families across all life stages, including a growing number of older adults. Twenty percent of the total balance of student loans today is held by Americans age 50 and older who soon will be—or have already—retired.
Among those who are not saving for retirement at all, more than one quarter (26%) point to the need to pay off student loan debt as the reason.
The yearlong study, which explores the intersection of student loan debt, longevity planning and family dynamics, shows that life stage—and who the loans are being taken out for—plays a key role in the balancing act of paying off student debt and saving for retirement.
Among the findings:
- Borrowers of all ages, including parents and grandparents, are making financial sacrifices to repay student loans
Among 25- to 35-year-olds who are not saving for retirement, 39% say they are prioritizing student loan payments. Of the parents and grandparents taking out loans for children and grandchildren, 43% say they will increase retirement savings once the student loan is paid off. In focus groups, women, in particular, described the struggle of sacrificing their own financial security in retirement in order to put their children’s education and wellbeing first.
“To be sure, getting a college degree remains one of the smartest investments a person can make in their financial future—but saving for retirement is equally important,” said Roger W. Ferguson, Jr., president and CEO of TIAA. “We believe that advice and coaching are key to navigating what can seem like competing demands. TIAA has found that people who engage with qualified financial professionals are better equipped to make decisions about paying for education for themselves or a loved one without sacrificing their future financial security.”
- Families fail to discuss student loans
Many borrowers also report that they did not discuss finances—including student loans—with their family. In fact, 40% of borrowers with loans for themselves and 36% of borrowers with loans for a child or grandchild report never speaking with their family about their student loans.
In many cases, family members aren’t aware of the financial strains caused by student loans. Over half of borrowers with loans for themselves (51.4%) and nearly one-third of borrowers with loans for a child or grandchild (31%) report their family knew “nothing” or “very little” about their student loans.
- Student loans place burdens on couples
According to the study, student loans are also impacting personal relationships, as those with higher loan amounts report greater delays to traditional milestones like getting married, having children or buying a home.
The study also shows that poor communication and unclear expectations about student loans can spark conflict for couples.
“We have always known that longevity can be optimized by having access to retirement security and support from family,” said Joseph Coughlin, Director of the MIT AgeLab. “What we now know is that for borrowers across the age spectrum, student loan debt can create shocks to both.”
- Student loans impact how people perceive their financial preparedness
The study also shows that student loan debt is limiting people’s confidence in their ability to meet their financial goals.
When borrowers were asked what would help them most in their financial situation, earlier training about finances and money management were cited as the most potentially beneficial strategy for tackling student loan repayments.
“Policymakers, employers, financial services companies and educational institutions all play an important role identifying and creating solutions,” Ferguson said. “Ensuring people fully understand their options and the impact of any loans they do take, along with innovative approaches to retirement plan design that enable employers to jumpstart people’s savings while they’re paying down their debt, can help address the issue.”
TD Bank survey
The TD Bank survey, which found Americans spend more than 20% of their take-home pay on student loan debt, also found 61% of respondents expect to repay their student loans for four or more years after graduating, while 24% expect to repay their loans for 10 years or more, indicating that loan holders’ paychecks will be impacted for years to come.
“The results of our survey show that student loans can have a ripple effect on borrowers’ financial futures,” saidMike Kinane, Head of US Bankcard at TD Bank. “Consumers owe money before they even earn their first paycheck, which is troubling.”
Beyond saving, Americans with student loan debt also face financial stress when it comes to daily expenses like grabbing a meal out or hitting the gym. Because of student loans:
- 54% of respondents say they have maxed out credit lines
- 35% dine out less often
- 60% do not take vacations
- 20% haven’t joined a gym
Perhaps most telling about the pressures of repaying student loan debt: nearly half of Americans surveyed (46%) reported they would not make the same decision about their education if given the chance. Of those, 15% stated they would choose a less expensive school; 20% would take out fewer loans and pay for the rest a different way; and 11% would not take a loan at all.
Delaying traditional markers
Similar to the TIAA-MIT AgeLab study, borrowers in the TD Bank survey say they delayed traditional markers of adulthood to manage the financial strain caused by student debt.
Millennials have been accused of shaking up the housing market and favoring unconventional marriage practices and family lifestyles. Student loans may play a role—TD’s survey found that due to student loans, Millennials delayed the following:
- Buying a home (36%)
- Contributing to a 401k plan (41%)
- Contributing to an emergency fund (43%)
- Getting married (21%)
- Having kids (26%)
“The reality is many Americans need to take on student loan debt to finance higher education, but most are unaware of how it will impact their lives for the long-term,” Kinane said. We’re seeing an alarming lack of education surrounding student loans, repayment terms and borrowers’ earning potential after graduation.”
T. Rowe Price survey
T. Rowe Price’s survey looked to understand the basic financial knowledge, attitudes, and behaviors of both parents of children ages 8-14 and their children ages of 8-14.
The survey found 42% of parents say it’s not their responsibility to pay for their kids’ college, yet nearly 70% of kids believe it is their parents’ responsibility.
Many parents (45%) say they will only be able to cover some college costs for their kids, while 25% say they will be able to pay most costs, 19% say they will not be able to cover any, and just 12% say they can pay all expenses.
Many of those who are unable to cover the full cost, the survey found, end up tapping their retirement savings or postponing retirement in order to pay for their kids’ college. Paying for their kids’ college education was among the top reasons cited by the 26% of parents who admitted pulling money from their retirement savings in the past two years.
The survey also found more than one-third of parents are uncomfortable discussing saving for college with their kids and few of them are having frequent conversations about it. The lack of communication is a likely cause for the disconnect between parents’ and kids’ expectations about who pays for college, the survey notes.
More from the T. Rowe Price survey
- Parents prioritize saving for college over retirement: 53% of parents say that saving for their kids’ college is a higher priority than saving for their own retirement.
- Paying for kids’ college is among the most commonly cited reasons for tapping retirement savings: 26% of parents have pulled money from their retirement savings in the past two years. When asked why, the top reasons cited are paying off debt (36%), vacation (28%), health care costs (27%), home repair or renovation (26%), and kids’ college education (24%).
- Most parents are willing to delay retirement to cover college costs: 68% of parents agree with the statement “I’d be willing to delay my retirement to pay for my kids’ college education.”
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
