Student loan borrowers know better than most: Debt is a dream killer.
For many of these borrowers, it’s a juggle between paying down their education debt and saving for future milestones, including the big one — retirement.
According to Fidelity Investments, among employees 50 and over with student debt, their retirement balances are 30% lower than their peers without debt and 20% lower for those ages 18-49.
“It’s a long-term financial issue, not something people simply age out of,” Priya Punatar, director of workplace research at Fidelity, told Yahoo Finance.
While student loan borrowers had temporary relief when payments were paused for more than three years, those bills restarted in October 2023. According to the most recent available data, the average federal student loan debt balance is $39,075, and the average monthly student loan payment is between $200 and $299.
Learn more: Student loans look different in 2026. Here’s what changed.
“One of the most striking findings in our research is how deeply student debt undermines retirement readiness, especially for older workers,” Punatar said.
“That’s a meaningful gap at a stage of life when people should be in their peak saving years and have limited time to recover, “ she said. “Not surprisingly, many of these individuals tell us they feel uncertain about when or even if they’ll be able to retire.”
For younger workers, too, the repercussions of not saving for retirement have the potential to be profound. Missing out on the earliest years of 401(k) contributions and the subsequent compounding interest typically results in smaller nest eggs decades down the road
If you’re grappling with student loan and credit card debt, it’s a squeeze to save for your golden years at the same time. A recent study found that more than 6 in 10 of the oldest Gen Zers say they have stopped or reduced their retirement savings, as have 46% of Gen X and 36% of boomers.
Read more: What is the average retirement savings by age?
The financial fallout of student loan debt has legs. Nearly all of the borrowers surveyed by Fidelity say their student loan balances affect their ability to save for other financial goals, build emergency savings, or keep up with basic monthly expenses.
Nearly 1 in 3 borrowers, for example, have delayed buying a home due to student loans.
It’s hard to find the money to spare. Borrowers are putting 22% of their income toward student loan payments on average. To break that down by age: Per Fidelity, the oldest members of Gen Z — between 18 and 29 — now tap 30% of their income to pay their student loan debt.
The debt comes with a psychological price.
Case in point: Student loan borrowers, on average, have about two months less in emergency savings than those without student debt, leaving them more exposed to everyday financial shocks, Punatar said.
“With rising living costs, many are forced into a constant balancing act — paying down debt, saving for retirement, and trying to maintain a basic financial safety net at the same time,” she said.
Borrowers are also far more likely to have medical debt, outstanding credit card balances, auto loans, and even loans taken against their retirement accounts, according to the Fidelity research.
“This underscores that student debt isn’t a standalone obligation,” Punatar said. “It’s layered and persistent.”
Taken together, these findings make clear that student loans “cast a long shadow,” she added. “They don’t just influence early career decisions. They shape financial confidence, emotional well-being, health-related stress, and the ability to retire with security.”
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Student loan borrowers stressed over choosing between paring down debt and saving for retirement did get some relief from a provision of Secure 2.0 that went into effect in 2024.
“The student debt retirement provision is particularly exciting as it directly addresses retirement savings — which is one of the top areas we see so many borrowers are forced to cut back on due to their student debt,” Jesse Moore, head of student debt at Fidelity Investments, told Yahoo Finance.
Here’s how it works: If your employer provides a match to your retirement plan contributions and you’re paying down your student loan, you can count your monthly student loan payments as your “contribution” to your employer-provided retirement account.
Provisions in the retirement law also make it possible for employers to earn a tax break on that type of match. The precise matching formula, however, and whether the option is offered depends on the employer.
In general, you can make contributions to your retirement account, then add in the student loan amount up to your employer’s full match — which generally ranges between 4% and 6% of your salary.
Employers aren’t required to provide this benefit, so it’s tricky to estimate the number of companies that currently offer it. Since the passing of Secure 2.0, Fidelity has seen huge demand for the student debt retirement benefit from all types of employers, according to Moore, with more than 200 companies adopting the firm’s student debt program to date, representing nearly 2 million eligible employees.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky and X.
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