How Does Student Debt Affect Early-Career Retirement Saving?



This paper examines the relationship between student loans and retirement saving behavior by 30-year-old workers.  Total outstanding student loan debt in the United States has quintupled since 2004.  Rising student debt levels mean that young workers must reduce either their consumption or their saving.  To what extent do these workers cut back on retirement saving?  Existing studies have lacked adequate data or controls for studying this issue: conventional financial datasets include too few younger households; the study samples used include older households whose student debt may be from their children’s education instead of their own; and many studies lack important controls to capture differences between attendees with more or less student debt.  This study uses the National Longitudinal Survey of Youth 1997 Cohort, a larger sample of workers turning 30, and includes detailed controls including school quality, parental background, and the underlying ability of the college attendee.  The analysis focuses on participation in an employer-sponsored retirement plan and retirement assets as of age 30.

This paper found that:

  • The estimated relationship between student debt and participating in a retirement plan – whether or not their employer offers one – is small and statistically insignificant, and we can rule out any large negative correlation.
  • Contrary to expectations, individuals with a large loan balance who were offered a plan are more likely to accept it, though the estimated relationship is small.
  • Some evidence indicates that bachelor’s degree-holders who have student loans have lower retirement assets at age 30, though the estimates are statistically insignificant, and retirement assets levels are unrelated to the size of their student loan balances.

The policy implications of this paper are:

  • Though young workers’ balance sheets are clearly hurt by student debt, the preliminary results indicate that they do not substantially reduce retirement saving to compensate.
  • This lack of a relationship between student loans and retirement plan saving suggests that the detrimental effect of student debt manifests itself either through reduced consumption or other reductions in net worth, such as credit card debt.
  • Despite these findings, it will be worth watching future cohorts to determine whether a stronger relationship between student debt and retirement savings will emerge in the future, as those who built up even more debt move toward financial and economic maturity.