Email FacebookTwitterMenu burgerClose thin

Return to Student Loan Payments Affects Long-Term Retirement Outlook, Nationwide Survey Shows


As federal student loan repayments resume following a pause during the COVID-19 pandemic, a Nationwide Insurance survey reveals two-thirds of workers believe the return of payments will derail their retirement savings. The survey spotlights broad financial pressures spanning generations. Most borrowers agree reinstating loan payments has already destabilized their finances and imperiled retirement planning. Nearly half are now rethinking retirement goals. Some are adjusting retirement contributions to afford payments, while others are pursuing side incomes to maintain savings while repaying debt.

A professional can analyze your loans and finances to optimize your repayment and savings. Talk to a financial advisor today.

Student Loan Basics to Date

Over 45 million Americans hold more than $1.7 trillion in student loans. Monthly payments average $393, and many borrowers must make these payments for terms of 20 years. While borrowers have some protections, bankruptcy typically won’t discharge student loans.

Higher education borrowers got a temporary reprieve from making monthly repayments from the CARES Act. This law paused federal loan payments and interest accrual beginning in March 2020 amid the disruption of the pandemic. However, bills are now again coming due for most borrowers in October 2023.

Federal student loans feature income-driven repayment (IDR) plans with payments based on earnings. IDR helps limit bills for lower earners. But borrowers eventually must still ultimately repay loans in full.

Student Loans and Retirement Savings

The current economic environment of high inflation and rising interest rates heightens student loan borrowers’ retirement saving challenges. Having to devote cash to loan payments reduces funds that could go toward necessities as well as savings and investments, including retirement plan contributions.

Starting repayment earlier gives a borrower more time to repay student loans and save for retirement later. But there is a tradeoff between paying off loans sooner and investing for retirement, due to the nature of compound interest and opportunity costs.

Student Loan Repayment in Action

Managing student loans amid retirement saving requires balancing priorities. Financial experts typically suggest prioritizing employer retirement matching funds over extra student loan repayments. Otherwise, workers forfeit “free money.”

A hypothetical example illustrates how this might affect a 45-year-old borrower who earns $5,000 monthly and has 15% of their income, or $750, available for retirement savings or debt payments. They have access to an employer-sponsored 401(k) with a 5% match.

This borrower owes $40,000 in student loans, with a 6% interest rate on a 10-year standard repayment plan. The monthly student loan bill is approximately $444.

During the repayment pause, this person could contribute the full $750 to their 401(k). With student loan repayments resuming, after paying the required $444 toward their student loan, they have only $396 left to contribute to their 401(k). That’s still enough to get the full 5% 401(k) match, which requires $250 and produces an equal $250 in employer matching funds. They will have $56 left to add to retirement savings or use to pay off the student loan early.

In more severe cases, resumed student loan payments may prevent workers from contributing enough to reach their full employer match, amplifying the ripple effect in retirement savings. A financial advisor can help you chart a course to a sustainable retirement.

Saving for Retirement While Repaying Student Loans

Typical debt repayment strategies call for paying down highest interest loans first. Making extra student loan payments before savings once employer matches max out can also repay loans faster.

Refinancing or consolidating loans at lower rates offers an opportunity to reduce interest costs. That may let borrowers retire debts sooner. However, federal student loans have special features not shared other debts, such as auto loans and credit cards. This situation calls for comparing any trade-offs in terms and protections offered by federal versus private student loans before refinancing federal loans. Talk to a financial advisor today to evaluate different paths to reaching your financial goals.

It’s also a good idea to see if an employer can help. Some employers now offer benefits like retirement plan contribution matches based on student loan repayments.

Repayment Realities

Despite these potentially helpful strategies, many borrowers still face tough trade-offs repaying debt amid higher living costs. Student loans’ principal and interest must ultimately get repaid. Meanwhile, borrowers necessarily forfeit savings and investment returns on funds diverted from retirement preparedness to student debt payoff.

Thanks to the emergence and dominance of a higher-education finance system based on student loans, younger generations increasingly struggle to resolve these debts before starting meaningful retirement saving. And, once assumed, such loans burden Americans throughout adulthood. For older borrowers, they hamper retirement saving already underway.

Bottom Line

With student debt obligations colliding with retirement goals for millions of older Americans, loan borrowers face tough choices. Required payments on student loans are the first priority. After that, borrowers may want to maximize retirement savings plan contributions to the limit of their employer match, if available. Next, making extra payments on high-interest student debts may make more sense than socking away more for retirement.


  • A qualified financial advisor can help create an optimal repayment and savings plan based on your specific student loans and household finances.  SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • See what your student loan payment will be using SmartAsset’s Student Loan Calculator.  

Photo credit: © Stojadinovic