Student Loans Make 401k Savers Squeamish

The mere presence of the loan—as opposed to the amount owed—is enough to do damage

401k, retirement, Center for Retirement Research, student loansLoans could make beggars out of graduates in retirement.

Student loan debt almost tripled “in real terms” between 2005 and 2017, garnering much attention from media and researchers, who question the impact this is having on the finances of those who are indebted.

In a recent brief, the Center for Retirement Research (CRR) at Boston College took a closer look at how student loan debt affects participation in 401k plans.

According to its findings, those who graduate with this type of debt tend to have much lower 401k and other retirement savings account balances than those who do not—no matter the size of the loan.

In fact, college graduates who owe on education loans have accumulated roughly half the amount of 401k assets by age 30 as their peers who graduated without student loan debt.

When examining data further, CRR identified several underlying trends among graduates who owe on student loans, such as:

  • They are more likely to earn less than their non-indebted peers at age 30 ($43,894 compared to $47, 931)
  • They are more likely to be black (22.6 percent versus 13.3 percent)
  • They are less likely to have a mother with a college degree (33.8 percent compared to 45.3 percent)
  • Their parent’s income when they were age 18 was less than their non-indebted peers’ parent’s ($66,593 versus $83,017)

Based on these trends, CRR concluded that graduates with student loan debt generally have lower socioeconomic status than graduates who exit college without this type of debt. This is a key consideration, as socioeconomic status may play a part in one’s retirement saving ability and behavior above and beyond whether or not a person holds student loan debt upon graduating.

CRR made another noteworthy discovery with regard to loan sizes. Interestingly, the amount of the loan and its associated monthly payment had little to do with how much a borrower put away in a retirement account. It seems the mere presence of the loan itself was enough to deter saving.

Whether the loan balance was considered to be small, medium or large, college graduates had accumulated a similar amount of retirement assets by age 30—on average, a little over $9,000. Graduates without student loans had retirement account balances around $18,200.

Among non-graduates (those who attended some college but didn’t finish), the larger the amount of student debt one held, the lower their retirement account balance tended to be, ranging from a little over $5,000 saved for 30-year-olds with an average of $6,744 of debt to $2,200 saved for those with an average of $28,116 of debt.

Unfortunately, non-graduates without debt didn’t fare much better. Thirty-year-olds without the burden of education loans had still only saved an average of $5,400, nearly $13,000 less than their college-educated peers.

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