Student Loan Debt Hurts Retirement Security, Says the Center for Retirement Research

Posted By Donna Fuscaldo on February 19, 2016 at 4:42 pm
Student Loan Debt Hurts Retirement Security, Says the Center for Retirement Research

Student loan debt is at epidemic levels with 40 million people stuck with at least one student loan. Its accounts for more than 30 percent of non-mortgage related household debt and is the reason some people are putting off purchasing a home or delaying starting a family. New research from The Center for Retirement Research at Boston College underscores what we all feared, it’s also preventing people from saving for their biggest purchase: retirement.

In fact, the Center for Retirement Research found carrying student loan debt can have the same impact on retirement savings as unexpected healthcare costs and increasing the social security retirement age.

“It’s kind of a big deal in terms of retirement,” says Anthony Webb senior research economist at the Center for Retirement Research at Boston College and co-author of the research that looked at the impact student debt has on the retirement security gap. “A bigger percentage of households that have student debt are at risk of not being able to maintain their standard of living in retirement.”

Student borrowing affects retirement, home buying and more

Retirement is probably the last thing on the minds of college bound students who take on student debt to bankroll expensive degrees. After all, they don’t have to worry about paying it back until after graduation so many view it as a means to an end. And while college graduates are better off than high school graduates in terms of earnings potential, not every degree is going to be a sound investment. Choose the wrong one or worse don’t graduate and that student loan bill is going to be hard to pay back.

That, in turn, will affect all future financial decisions whether to become a homeowner or even if a new car is in the cards. It could shut you out of the mortgage process if the student loan is in default or if it pushes your debt-to-income ratio into denial territory. Center for Retirement Research found, for instance, households with student debt are 6.7 percent less likely to own a home. If they do own one, its value is 5.4 percent lower, which transfers into less equity one could tap into during their retirement years.

With the average borrower owing about $31,000, it is also causing forbearances and delinquencies, which impacts homeownership. According to the St. Louis Federal Reserve of the $1.3 trillion in student debt, more than 27 percent in repayment is delinquent.

Student loan debt increases the risk to retirement security

Because of the dire situation and the impact it is having on the economy, the Center For Retirement Research thought it would be interesting to see how having $31,000 in student loan debt would impact a person’s overall  retirement. Using the National Retirement Risk Index, which measures the percentage of working households age 30 to 60 who are on track to be able to maintain their standard of living in retirement, it looked at what a person’s age 60s retirement security would be if the person had the same level of student loan debt as today.

The result: the percentage of people at risk would increase from 51.6 percent to 56.2 percent, marking a 4.6 percent increase. That may not seem like a lot, but considering a 19.6 percent across-the-board cut in Social Security benefits would raise the index by 10.7 percentage points, student loan debt’s impact is pretty big.  The result on the index is roughly half of the impact of an unprecedented move like slashing social security benefits.

“We’ve done work with the National Retirement Index in the past looking at the impact of retirement health care costs and increasing the social security normal retirement age, and it moved the needle by a similar order of magnitude,” says Webb. “The bottom line is that student loans definitely have a meaningful adverse effect on retirement security.”

Spending has to give somewhere

So what can be done to right this dire situation? Depending on who you ask lots of different things. From politicians who think student loan debt should become mortgage debt to cries for lower if not free college, there are a lot of ideas floating around about how to handle this crisis. But either way you look at it, one thing is for sure, in order to improve retirement preparedness people are going to have to cut back on something other than their retirement nest egg.

“We make this assumption that the extra student debt is crowding out household retirement savings and house purchases,” says Webb. “If they have extra student debt, instead of cutting back on saving for retirement or saving to purchase a home, they ought to be cutting back on current consumption.”

Donna Fuscaldo
Donna Fuscaldo is a freelance journalist hailing out of Long Island, New York. She has also written for,,,, Business Insider, Dow Jones Newswires and the Wall Street Journal.

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