Student loan debt linked to lower 401(k) balances

Two economic trends have unfolded over the past three decades that, in combination, appear to have made it much harder for workers to financially prepare for retirement: a crushing level of student loan debt and the switch from pensions to 401(k)s.

With the burden squarely on individual workers to save for retirement, many have struggled to do so as the average outstanding student loan balance has quadrupled.

Across age, income and education levels, people who are still paying down college debt on average had much smaller defined-contribution plan balances and in some cases were less likely to own a home, according to a study published Thursday by the Employee Benefit Research Institute. The report is based on years of data from the Federal Reserve’s Survey of Consumer Finances.

In 1992, the median outstanding student loan balance was about $5,700, in 2019 dollars adjusted for inflation, according to the report. By 2019, that figure had risen to $22,000 a 286% increase, study author Craig Copeland wrote. During that time frame, the average student loan balance also increased substantially, going from $12,500 to more than $40,500.

Numerous surveys in recent years have highlighted the difficulty that early-career college grads have in balancing paying down their loans and starting to save for retirement. This trend has not been lost on employers, many of which have started offering incentives to help pay down these loans. That includes components of DC plans that let companies make matching contributions for workers who are not putting their own income into 401(k)s but instead are paying off loans. Financial wellness programs also often include assistance related to student loan debt.

Surveys of workers have also shown that many would prefer student-loan payment assistance over company contributions to retirement plans.


According to the EBRI study, the median DC account balance is $55,000 among people who have no student loan debt, versus $21,000 for those who do. That disparity persisted across income levels, with those in the lowest income quartile having a $5,000 median DC balance if they had no college debt and just $1,000 if they did. At the highest income level, the median balances were $140,000 and $66,000 respectively.

The gap also held across age groups. For households under 35 years, the student-loan-free DC plan median balance was $12,000, compared with $9,000 for those saddled with debt. Among people 55 to 64 years old, those medians were $90,000 and $75,000, respectively.

However, having a DC plan balance was positively correlated with student loan debt. Among those with such debt, nearly 50% had positive DC account balances in 2019, compared with 28% for those without student loans.

“Families with student loan debt have higher incomes, have heads with higher educational attainment and are less likely to be retired, so they are more likely to have access to a DC plan,” the study read.

“Nevertheless, student loan debt can be considered an investment that helps individuals obtain a better job with higher earnings that cannot be reached without a college degree,” the report stated. “Thus, in aggregate, student loan debt is overwhelmingly held by families with incomes in the top half, with a net worth in the top half, or who have heads with a college degree or higher.”

Overall, 56% of those with student loan balances owned a home, versus more than 67% those without the loan debt, the report found. The is likely due in part to student loan debt being more common among younger people, who in general are less likely to own homes than people in higher age groups, Copeland noted.


In 1992, 10.5% of U.S. families carried student loan debt, and that figure more than doubled by 2019, to 21.4%, according to the report.

However, there were some stark differences across racial groups.  Among white people, 20% in 2019 had student loan debt, versus less than 11% in 1992. The rates was higher among Black people financing higher education, with more than 30% carrying student loan debt in 2019, versus less than 13% in 1992, the report found.

Having student loans was also inversely correlated with income, as those earning less were more likely to have such debt. In 2019, 36% of workers in the bottom income quartile had student loan balances, versus 22.5% in the second quartile, about 17% in the third quartile and about 19% in the fourth.

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