It’s been widely reported that the heavy burden of student debt will shortchange retirement savings for many, but the extent of the impact wasn’t known. Now HelloWallet, a Morningstar company, has released a study on just how much payments on student debt reduce the amount of money saved for retirement and what borrowers can do to mitigate the impact.
The report found that for every dollar spent on paying down student debt, 17 cents less was saved for retirement, based on one set of data, and 35 cents less, based on another.
The smaller savings amount came from a study of HelloWallet data from 1,331 users who included their loan debt balances as well as retirement account balances in their HelloWallet app, controlling for age and take-home income.
The average outstanding loan balance for those users was $42,000, which is above the national average, and the average income was $89,335, also above the national average. The impact would be even greater for borrowers whose income was lower; the same is true if their loans were larger.
In addition, the study, “Two’s a Crowd: Are Retirement Savings Being Crowded Out by Student Loans?” found that the larger the loan balance the bigger the impact on retirement savings.