How to pay off student loans while saving for retirement


The good news is you don’t need to pick just one or the other. Here are some tips that can help you pay off student loans while investing and saving for retirement.

Federal student loan payments were paused for about three years, but that pause ended as of October 2023. And if you’re one of the millions of borrowers with federal student loans, this means a new line item may be entering (or re-entering) your monthly budget—your student loan repayment. If you’re among the many who may need to adjust their finances because of student loan repayment, you may be asking, “How can I pay off my student loans and still save for retirement?”

If you understand how your student loan payments can impact your ability to save or invest, you can find a way to do both. Here’s what to consider about paying off your student debt while also setting yourself up for the future.

The highlights:

  • Paying off student loans shouldn’t outweigh your goal of saving for retirement.
  • Investing in a 401(k) or an IRA early in your career can help set you up for long-term financial freedom by giving your retirement savings time to compound.
  • There are multiple ways you can find room in your budget to pay off student loans or save for retirement, whether it means adjusting your spending, increasing your income, or looking into employer assistance options.

How student loans can impact retirement savings

With student loan payments back in the budget, your ability to save for retirement may be impacted. You may be one of many borrowers planning to redirect retirement savings to pay off debt. According to a survey, two-thirds of workers say student loan repayments will derail their retirement plans. Among those 45 and over, 29% plan to adjust their retirement plan contributions to keep up with their student loan payments, and 18% have already adjusted their contributions.Disclosure 1

While paying off your student loans ASAP may reduce your stress and mentally lighten your financial load, saving for your retirement can provide similar benefits—even if retirement feels really far away. This is because of the power of compound interest, where time plays a crucial role. Saving early means more time for your money to earn interest, yielding you more money when it is time to retire.

This example shows the power of saving for retirement early and compound interest: If a 25-year-old started investing $100 per month with a 5% annual compound rate of return, by the time they’re 65 they’ll have about $162,000 in their account. But if they wait until age 35 to start saving $100 a month—even with the same rate of return—they’ll have only $89,000 by age 65.Disclosure 2

Line graph displaying the example for Investing $100/month at 25 vs. 35

5 ways to balance student loan payments and retirement savings

So how do you find the right balance between student loans and retirement? Here are a few ideas:

1. Refresh your budget. Look at your monthly budget and find money that you can put toward loan repayment. Try things like cutting hidden expenses, adjusting your shopping habits, and avoiding unnecessary fees.

2. Consider refinancing or consolidating. Whether it makes sense to refinance depends on your situation and current interest rates. But many student loan borrowers—especially those with private student loans—will refinance or consolidate their student loans to score a lower interest rate or a lower monthly payment. If you choose to consolidate, be mindful about consolidating private and federal student loans together, as this can forfeit potential federal student loan benefits (like the recent repayment pause).

3. Ask your employer about student loan repayment assistance. Employers can provide up to $5,250 in annual student loan repayment assistance without tax consequences for the employer or the employee. Although not all employers offer this, it’s worth asking HR to see if this perk is available to you.

4. Ensure you’re getting your full 401(k) match. For each dollar you save in your 401(k), your employer may match your contribution, up to a certain percentage of your salary. In 2022, 83% of employers provided some kind of 401(k) match:Disclosure 3 which can help supercharge your retirement savings. If you’re not investing enough in your retirement account to get your full employer match, it can be like leaving “free money” on the table.

5. Try to increase your income. Another option to find cash for your student loan repayment is to generate more income. Consider asking for a raise, networking for a new job with a higher salary, or starting a side hustle.

Should I use extra funds to pay off student loans or invest?


of employers provide some kind of 401(k) match,Disclosure 3 which can help supercharge your retirement savings.

If you have a solid financial foundation with money left over each month (read: you already have a healthy emergency fund and are not living paycheck to paycheck), you may be wondering whether you should use your extra funds to pay off student loans or save more for retirement.

In general, if the average return on your retirement investment account is higher than your student loan interest rates, it makes sense to prioritize investing versus paying down student loans. If your student loan interest rate is higher, you could prioritize making more aggressive student loan payments with your extra money. 

For example, the S&P 500—a stock market index that tracks the 500 largest publicly traded companies in the U.S.—delivered an average annual return of 10.7% between 1992 and 2022.Disclosure 4 Meanwhile, the average interest rate on student loans is 5.8%.Disclosure 5 Although past performance is not a guarantee of future returns, it’s possible you could earn more in the long term from investing your extra funds compared to what you’d save on interest if you used that money to pay off your student loans quicker. The likelihood of this increases if you’re investing in tax-advantaged retirement accounts like a 401(k) or an IRA.

If you have other forms of high-interest debt, like credit card debt, you should consider throwing your extra funds at that, since the general advice is to pay down your debt with the highest interest rate first.

“To reach financial greatness, you need to pay yourself first by saving and investing at least 10% to 15% of your income for long-term goals.” –Brian Ford, head of financial wellness at Truist


You’ll face a number of big financial obligations in life—paying for education, a home, a car—and you can borrow money to help you with most of these. But you can’t borrow money for retirement, so it’s important to prioritize saving early. That doesn’t mean you need to put student loan repayments on the back burner. Proactively managing your repayment terms, living within a set budget, and maximizing your retirement savings can help set you up for long-term financial success.

So what’s next for you?

  • Log on to your student loan servicer. Make sure you’ve reviewed your repayment plan and adjust as needed.
  • Take some time to envision your retirement, which can help you figure out your saving goals. 
  • Check your current retirement contributions. If you’re prioritizing your student loans, are you contributing enough to your retirement account to at least get your employer match?

5 need-to-know strategies to pay off student loans

No matter where you are in your financial journey, there are some universal tips for paying off student loans.

  1. Set up a repayment plan. If you have federal student loans, log on to your servicer’s website and set up a repayment plan to help you obtain manageable payments.
  2. Consider an income-driven repayment (IDR) plan. IDR plans are just what they sound like: How much you pay is based on how much you earn. Most federal loans qualify for an IDR plan, and after completing a set number of payments (like 20 years of payments), your loan may be forgiven (yes, really!).
  3. Make at least the minimum payment. Not making minimum payments or missing payments could lower your credit score, which can impact your ability to make big purchases (like a car or house) down the road.
  4. Look into the tax benefits. You can deduct up to $2,500 in annual student loan interest in your tax return, subject to income limitations.
  5. Explore Public Service Loan Forgiveness. If you’re employed by the government or a not-for-profit organization, try applying for the PSLF program. In this program, certain careers (such as a teacher, nurse, police officer, etc.) can have their federal loans forgiven after they’ve made 120 qualifying monthly payments.

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