Student loan borrowers know better than most: Debt is a dream killer.
For many of these borrowers, it’s a juggling act between paying off their education debt and saving for future milestones, including the big one: retirement.
According to Fidelity Investmentsamong employees age 50 and older with student debt, their retirement balances are 30% lower than their debt-free peers and 20% lower for ages 18-49.
“It’s a long-term financial problem, not something that people just age out of,” Priya Punatar, director of workplace research at Fidelity, told Yahoo Finance.
While student loan borrowers got temporary relief when payments stopped for more than three years, those bills restarted in October 2023. According to the most recent data available, the average federal student loan debt balance is $39,075 and the average monthly student loan payment is between $200 and $299.
More information: Student loans look different in 2026. Here’s what changed.
“One of the most striking findings from our research is the extent to which student debt undermines retirement preparedness, especially for older workers,” Punatar said.
“This is a significant gap at a stage in life when people should be in their savings years and have limited time to recover,” he said. “Not surprisingly, many of these people tell us they don’t know when or even if they will be able to retire.”
For younger workers, too, the repercussions of not saving for retirement can be profound. Missing out on the early years of 401(k) contributions and subsequent compound interest typically translates to smaller nest eggs decades later.
If you’re struggling with student loan and credit card debt, it’s a hardship to save for your golden years at the same time A recent study found that more than 6 in 10 older Gen Zers say they have stopped or reduced their retirement savings, as did 46 percent of Gen Xers and 36 percent of Boomers.
Read more: What is the average retirement savings by age?
The financial consequences of student loan debt have legs. Nearly all 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, has delayed buying a home because of student loans.
It’s hard to find spare cash. Borrowers are spending 22% of their income on student loan payments on average. To break it down by age: Per Fidelity, the oldest members of Gen Z (ages 18-29) are now using 30% of their income to pay off their student loan debt.
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 off debt, saving for retirement and trying to maintain a basic financial safety net all at the same time,” he said.
Borrowers are also more likely to have medical debt, outstanding credit card balances, auto loans and even loans against their retirement accounts, according to Fidelity’s research.
“This underscores that student debt is not a stand-alone obligation,” Punatar said. “It’s layered and persistent.”
Taken together, these findings make it clear that student loans “cast a long shadow,” he added. “They not only influence early career decisions, but shape financial confidence, emotional well-being, health-related stress and the ability to retire safely.”
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Student loan borrowers stressed about choosing between reducing debt and saving for retirement got some relief from a Secure 2.0 provision that took effect in 2024.
“The student debt retirement provision is particularly exciting because it directly addresses retirement savings, which is one of the main areas we see many borrowers being forced to cut back on because of their student debt,” Jesse Moore, head of student debt at Fidelity Investments, told Yahoo Finance.
Here’s how it works: If your employer matches your retirement plan contributions and you’re paying off your student loan, you can count your monthly student loan payments as a “contribution” to your employer-provided retirement account.
The provisions of the superannuation law also allow employers to obtain a tax reduction on this type of match. The exact matching formula, however, and whether the option is offered is up to the employer.
You can generally make contributions to your retirement account and then add the student loan amount up to your employer’s total match, which is usually between 4% and 6% of your salary.
Employers are not required to offer this benefit, so it is difficult to estimate the number of companies that currently offer it. Since the approval of Secure 2.0, Fidelity has seen strong demand for student debt retirement benefits from all types of employers, according to Moore, with more than 200 companies adopting the company’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 Bite: A Gen X Guide to Securing Your Financial Future,“”In Control Over 50: How to Succeed in the New World of Work,” and “Never too old to get rich.” Follow her blue sky i X.
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