Student Loans Put Retirement at Risk

Any discussion about improving lifelong financial security should include discussions about managing student loan debt, researchers conclude.

Student loan debt was $1.2 trillion in 2015, compared to $.2 trillion in 2003, notes an Issue Brief from the Center for Retirement Research at Boston College. 

It now accounts for more than 30% of total household non-mortgage debt, having surpassed credit card debt in 2011. Fifty-five percent of households ages 21 to 29 in 2013 had student debt, with an average amount of $31,000.

The researchers found that starting out $31,000 in the hole could have a big impact on households’ retirement preparedness. 

The National Retirement Risk Index (NRRI), which is based on the Federal Reserve’s Survey of Consumer Finances, a triennial survey of a nationally representative sample of U.S. households, shows that as of 2013, even if households worked to age 65 and annuitized all their financial assets (including the receipts from reverse mortgages on their homes), 51.6% were at risk. Sixty percent of households with student debt are at risk compared with 49.2% of those without this debt. In addition, those with student loans who have completed college have a slightly higher percentage of risk than those without student debt (52.9% versus 49.2%), but for households with student loans that did not complete college, the difference is 67.1% versus 49.2%.   

The researchers recalculated the NRRI by giving today’s working-age households the same level of student debt as those recently leaving college, and found that an additional 4.6% of households would be at risk of having inadequate income in retirement—from 51.6% to 56.2%. 

The researchers conclude that college costs should be included in broader policy discussions about how to improve lifelong financial security.

The Issue Brief may be downloaded from here.