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$30K in Student Loan Debt Could Mean $325K Less in Retirement

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Millennials who begin their careers with $30,000 in student loan debt may find themselves with $325,000 less at retirement than their debt-free peers, according to new findings from LIMRA Secure Retirement Institute. 

A new report from LIMRA Secure Retirement Institute looks at the effects education debt can have on retirement savings.

“A full consideration of retirement security has to account for debt,” according to the report, Calculated Choices: Examining Debt and Retirement Savings Decisions. “Having debt reduces the money available to save and limits funds available for retirement expenses. Looking at financial assets in isolation may understate the gravity of the retirement ‘crisis.’”

Researchers at the Secure Retirement Institute found that a 22-year old who begins his or her career with $30,000 of student loan debt could reach retirement with $325,000 less than a peer who is not burdened with an education loan. For $50,000 of debt, the amount is closer to $530,000 less in retirement savings.

“The general belief has always been an investment in education was worthwhile because it would result in a higher paying career,” LIMRA states. “However, the recession impacted millennials at the start of their careers, with many ending up unemployed or underemployed for years after they graduated.”

While companies that administer 401(k) and other defined contribution (DC) plans report high participation rates by millennials, LIMRA finds the debt-burdened millennials are saving at a lower rate.

According to LIMRA’s research, millennials without student loans are 60% more likely to maximize their employer match compared with those who are paying education loans.  

Outside of mortgages and home equity loans, student loans comprise the highest median amount of debt.

According to LIMRA, more than 20% of the U.S. population have student loans. (In comparison, 43% of U.S. households have mortgage and home equity debt and 38% hold credit card balances.)

The under-35 age group has more than tripled its education debt since 1989. According to LIMRA’s report, the average education debt increased from $3,000 in 1989 to over $19,500 in 2013 for this age group.

LIMRA finds this is largely due to increases in college tuition.

LIMRA looked at The College Board data showing that the average tuition and room and board charges for a public four-year school were $9,000 in 1990 and increased to $19,000 in 2015. For a private four-year school, the average tuition and room and board charges were $24,000 in 1990 and increased to $42,500 in 2015, according to The College Board.

LIMRA also looked at how much education debt pre-retirees and retirees hold.

For pre-retirees age 55 to 64, the average education debt has increased from $600 in 1989 to just under $8,000 in 2013.

“The large increase in education debt indicates that many pre-retirees are taking on their children’s and grandchildren’s student loans,” LIMRA states. “They may also have their own student loans if they sought additional schooling for a second or third career.”

Meanwhile, retirees age 65 to 74 took essentially no education debt into retirement in 1989.

According to LIMRA, the average education debt for this age group increased from $400 in 1989 to more than $2,300 in 2013.

“As with other forms of debt carried into retirement, education loans can hamper a retiree’s ability to meet discretionary and nondiscretionary expenses,” LIMRA states.

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