There is an estimated $1.56 trillion in student debt in the U.S. and December signifies the first time 2019 college graduates will begin paying back student loans, six months from graduation.
According to new data from Fidelity Investments, many individuals are delaying contributing to their retirement or, just as distressing, taking out loans against their 401k, an action that is “literally borrowing against one’s future to pay for the past,” Fidelity says.
Almost one in five (19%) of Student Debt Tool users report contributing nothing to their 401k, with one in four (24%) only contributing between 1% and 5% of their salary.
Overall, 13.9% report having an outstanding loan against their 401k, which is a concern because these loans can have a dramatic negative impact on 401k balances—particularly with younger retirement savers, who have a longer time horizon and as a result, greater potential in their early years to save more.
“Our research consistently shows that student debt can have a devastating impact on the financial wellness of many Americans, causing them to delay life events such as buying a home, getting married, having children, and saving for retirement,” said Asha Srikantiah, head of Fidelity Investments’ student debt program.
Perhaps surprisingly, the data reveal that student loan debt is not a problem isolated only to the young. In fact, although the majority of Student Debt Tool users who reported their debt are Millennials (21,034), users who are Boomers (1,599) or Generation X (6,996) actually carry a higher average student debt loan burden.
Student Debt Tool users who are Boomers have an average monthly payment of $565 and an average loan balance of $56,652. Gen X users have payment of $490 and an average loan balance of $55,870. Then you have Millennials with an average payment of $469 and average loan balance of $45,548.
“The data is clear—finding ways to effectively pay down student debt isn’t an isolated problem. It is impacting young and old, as well as workers in various industries,” Srikantiah said.
Which industries are burdened most with student debt? According to the data, employees in the private health care and social assistance industries are far and away paying the most—$685 a month, which is more than $120 a month more than the nearest sector (higher education at $563).
To address the problem, companies such as Fidelity are offering ways to help employers help their employees by crafting a path to action.
“By adopting a holistic approach, we are helping employers get in the trenches with employees to find ways to pay student debt off faster and hopefully, save money,” said Srikantiah. “What we have learned this past year is growing numbers of companies are increasingly aware that helping employees address the issue of student debt can help improve their overall financial wellness, which can in turn have a positive impact from a business perspective in a host of ways.”
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.
