How to keep saving for retirement when student loan payments restart

In a month or so, millions of Americans will have to adjust their budgets to once again put hundreds of dollars a month toward their student debt.

Their retirement savings may suffer as a result, experts warn.

“Workers are already facing obstacles to saving for retirement, especially inflation and market volatility,” said Adrian Miguel, director of advice at Schwab Retirement Plan Services. “The resuming of student loan repayments poses another challenge.”

Before the pandemic-era pause on federal student loan payments, which has now been in effect for over three years, research showed the debt was making it harder for borrowers to salt away money for their old age.

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Around a third of employees who had student debt were not contributing to a workplace retirement plan for which they were eligible, according to findings by Fidelity. The share of student loan borrowers saving at least 5% of their salary in their 401(k) retirement plan swelled to 72% during the payment pause, from around 63% prior to the Covid-19 pandemic.

“The payment pause is the first time that many borrowers received any sign of relief since they took on their loans, which for some could mean 10 or more years,” said Jesse Moore, senior vice president and head of student debt at Fidelity Investments.

Experts shared tips on how borrowers can pay down their student debt and keep growing their retirement nest egg.

Before student loan payments restart, borrowers should make sure they know how much their monthly bill will be, Moore said. Shifting to a plan with a lower monthly payment, if available, can free up money for retirement savings and other goals.

If your payment seems too high to allow you to also save for retirement, explore the different repayment plans offered by the U.S. Department of Education. The Biden administration is working to roll out a plan in which borrowers pay only 5% of their discretionary income each month to their education debt. It’s also worth researching debt forgiveness programs.

It’s understandable to be eager to get out of debt, but if you delay saving in favor of accelerating your student loan repayment, you’ll miss out on the decades of compounding growth it takes to accumulate a healthy retirement savings. In fact, the younger you begin saving, the less you need to put away each month to meet your retirement goals.

“Remember, every little bit helps,” Moore said.

Starting in 2024, many companies will start to offer retirement match contributions when employees make their student debt payments.

“Be sure to check in with your employer on any updates to your benefits,” Moore explained.

Paying down your debt is a form of saving, said Boston University economist Laurence Kotlikoff. That’s because it’ll free up more money for you down the road.

“So don’t worry excessively about saving less in the short term” for retirement, Kotlikoff said.

At the same time, you want to at least contribute enough to your workplace retirement account to get your employer’s full match, if they offer one, he said. The most common matching formula is 50 cents for each dollar contributed by the employee, up to 6% of pay, according to research from the Plan Sponsor Council of America.

You won’t be able to get that kind of return anywhere else, experts say. If you don’t contribute, you miss out on those matching dollars.

Experts recommend examining your spending over the past few months and seeing where you can cut back as the resumption of student loan payments nears.

Cutting out even a few small expenses, such as a second coffee a day or a few subscriptions, can free up extra money you can redirect to bigger financial goals.

Some people might explore bigger changes, such as pursuing a different line of work or asking for a raise. Others might explore moving to another city where the cost of living is lower, particularly if their employer allows for full-time remote work.