Student Loan Repayments May Crimp Retirement Savers, Including Gen X

New studies from Nationwide and National Institute show widespread impact of student loan repayments on everybody from recent grads to Gen Xers.

Student loan repayments coming back online in October could have major implications for the retirement plan industry, as participants across generations shift their financial planning to meet the obligations, according to recent research and experts.

According to research released Friday, student loan debt is not just hitting recent grads but will also impact older generations and possibly limit how much they can sock away during their prime working years. Among workers in Generation X, 13% still have student loan debt, with average balances of slightly more than $40,000 and a median of $25,000, according to the latest analysis from the National Institute on Retirement Security.

“Gen Xers are fast approaching retirement age, so it’s troubling that some are still carrying student loan debt,” Tyler Bond, the NIRS research director, said in a statement.

Not Just Recent Grads

The typical Gen X household with student loan debt has $40,000 in retirement savings. However, those households had consistently lower average amounts of retirement savings when compared with their counterparts without student loan debt. NIRS suggested that student loan debt may be hindering retirement savings.

Gen Xers in the study were 62% white, and they made up 59% of Gen Xers without student loan debt. Black Gen Xers made up 10% of the age group, but they represented 22% of Gen Xers with student loan debt. Asian-American Gen Xers were the least likely to have student loan debt. Additionally, women were more likely to have student loan debt (60%) than men (40%).

Higher-earning Gen Xers were more likely to have student loan debt. Meanwhile, Gen Xers with student loan debt had higher sponsorship rates (76%) and participation rates (66%) in employer-sponsored retirement plans.

“The good news is that attending college has increased Gen Xers’ earning power and access to workplace retirement plans,” Bond. “But every dollar they continue to spend on college loans is money that could have been invested in their retirement. Retirement is going to be a nightmare for too many Gen Xers, and those who continue to have the burden of debt could be saving more for this major challenge.”

In a separate conversation also linked to new student loan findings, Eric Stevenson, president of Nationwide’s retirement solutions division, says employers must focus on student loan repayments for participants from multiple generations, who will be managing those payments, interest rate increases and inflation all at once.

“We always think about student loans for people who are just graduating, but that’s not the case,” Stevenson says. “We, as recordkeepers, need to encourage fund sponsors to adopt the student loan match. I’d like to think of it almost as if it were a requirement.”

The SECURE 2.0 Act of 2022 gives employers the option to match student loan payments with contributions to workplace retirement savings plans, starting in 2024, though many in the industry expect offerings to be rolled out slowly as advisers, recordkeepers and plan sponsors must align before offering the option in workplace benefit plans.

Stevenson says that the industry will not see the impact of the student loan payments returning immediately. But in six months, plan sponsors and advisers should expect to see savings rates drop as people shift to paying off loans.

Making Adjustments

In research on student loans released Wednesday by Nationwide, the firm found that one in 10 people with student loans is aged 45 or older.

In a survey of 1,200 retirement plan participants fielded in August, researchers found that employees 45 and older are considering moves to manage their student debt that will hurt long-term financial strategies, including:

  • 29% are planning to adjust their retirement plan contributions to keep up with student loan payments;
  • 49% are reconsidering the feasibility of their retirement goals in light of their student loan debt; and
  • 59% are considering additional sources of income or side gigs to keep paying off student loans and saving for retirement.

“I don’t think employers are going to want to go and increase everyone’s salary [in response to student loans returning,” adds Amelia Dunlap, Nationwide’s vice president of retirement solutions marketing. “The student loan matching is a way that employers can still provide a responsive benefit to your employees without having to do a wholesale compensation increase.”

The findings are contained in a new fact sheet, “The Impact of Student Loan Debt on Retirement Preparedness for Generation X,” which supplements a recent NIRS report, “The Forgotten Generation: Generation X.”