Participation Rates Not Affected by Student Loans

A brief by the Center of Retirement Research studied how the size and scope of student loans affects 401(k) participation and retirement wealth accumulation. 

As studies increasingly cite student loan effects on retirement savings, a latest brief from the Center of Retirement Research challenges if, and how, the debt tests 401(k) savings.

While the study revealed that graduates without student debt are more likely to have superior financial outcomes than those in debt, 401(k) participation between young workers with and without student loans differed little. Even considering student loan size, participation rates among college graduates with low, medium and high loan balances were practically similar, reports the study.

However, while 401(k) participation went unhampered, the report discovered graduates find trouble with retirement wealth accumulation. Assets from graduates age 30 with student debt were nearly 50% lower than those without loans. Additionally, graduates with smaller loans had equivalent retirement assets as those with higher loans, a finding that the study says exemplifies how the sheer thought of student loan debt can hinder retirement savings. Graduates in the 25, 50 and 75 percentiles of debt all had between $9 to $9.3 thousand in retirement plan assets at age 30, while graduates with no debt had $18.2 thousand, according to the study. This, the study finds, expresses how a loan’s presence holds higher impact than the scale of its payments.

Also a concern were earnings, race, gender and parents’ income among graduates facing student loan debt, and those not. Thirty-year-old graduates with student loan debt were found to make, on average, $43,894, while those without debt earned more, at $47,931. Among black graduates in the study, 22.6% collected some form of student loans, while 13.3% did not. Mothers with college degrees were less likely to have student debt, as 45.3% did not hold any loans, and 33.8% did. Lastly, household income played a factor in a college graduates student loan debt. On average, parents of those with student debt earned $66,593, while those without made $83,017.

For non-graduates, the difference in numbers was more prevalent. Non-graduates in the 25 percentile had $5.1 thousand in retirement assets, while those in the 50 percentile maintained $3.6 thousand, and those in the 75 percentile with $2.2 thousand. Non-graduates with no debt had greater retirement plan assets at $5.4 thousand.

The study was conducted by the National Longitudinal Survey of Youth, 1997 Cohort (NLSY97), which collects data from young Americans starting at childhood through their adult years. More information on the study can be found here.