Student Loan Debt Is Crippling Retirement Savings

Student loan debts are having a "tremendous" impact on the amount of money Americans can save for retirement, according to the results of a new study.

A 3-year study conducted by the Employee Benefit Research Institute (EBRI) and JP Morgan Asset Management has found that having student loan debts has a "statistically significant negative impact" on how much workers are able to contribute to their retirement.

It found that the burden of education debts can lower how much savers can put away each month, resulting in lower amounts banked at the end of the study period.

Craig Copeland, director of wealth benefits research at the EBRI, told Newsweek: "The study compares those that are actually contributing to the 401(k) plan, so the impact on contributing or not contributing is not studied.

"Of those contributing, the individuals with student loan payments have lower contributions on average than those without student loan payments, even when controlling for income, age, and tenure.

"As result, the account balances at the end of the study period were less for those who made student loan payments during the study period vs. those who did make these payments."

There are over 43 million Americans who currently have outstanding student loan debts. Healthcare technology firm Abbott has reported that student loans are the third largest form of debt in the U.S. after mortgages and vehicle plans.

Those who made less than $55,000 and are repaying student debt contributed 5.3 percent to their savings, while those without debt were able to save 5.7 percent over the period of the study. Those with student loans and incomes over $55,000 contributed an average of 6.1 percent while debt-free participants contributed 7.3 percent.

One-fifth of those who took part said they had made student loan payments in at least one of the three years of the study. Only 12.1 percent had made loan payments in all three years. According to the report, younger individuals and higher-income employees were more likely to have student loan payments.

"Also, 25 to 30 percent of the student loan paying participants changed their contribution level when their payment status changed," Copeland continued.

"The participants who had higher contribution amounts before the student loan payments started were more likely to reduce their contribution levels after the start of these payments.

"For those stopping payments, plan sponsors could use this as a time to suggest that they increase their contributions, as many of those contributing did not make a change in their contribution levels."

It is not the only recent study that has pointed toward loan debts profoundly impacting people's ability to save for their later years. According to a survey conducted in October 2023 by Morning Consult for Abbott, "student loans are having a profound and far-reaching impact on young adults and their planning for the future."

The study found that 46 percent of those surveyed said their college debt has impacted how much they save for their retirement. It also found that 86 percent of those who owe money have reduced the amount they contribute to their retirement. As much as 44 percent said they have withdrawn money from their retirement funds.

On January 1 this year, the Secure 2.0 retirement law came into effect across the U.S., along with the repayment of student loans beginning again after a three-and-a-half-year halt prompted by the coronavirus pandemic. It allows employers to count student loan payments toward matching 401(k) contributions.

Update 2/13/2024 11:35 a.m. ET: This article has been updated with comment from Craig Copeland.

Has your ability to save for your retirement been affected by student loans? If you'd like to share your story, email a.higham@newsweek.com.