New study suggests student loan debt does not adversely affect 401(k) participation

While 401(k) participation went unhampered, the report discovered that retirement wealth accumulation for graduates was affected

New study suggests student loan debt does not adversely affect 401(k) participation

Jon VoglerTime to read: 2 min

Student loan debt nearly tripled in real terms between 2005 and 2017, and both the share of college graduates with loans and their average outstanding loan balance soared. However, a recent brief from the Center for Retirement Research (CRR) titled “Do Young Adults with Student Debt Save Less for Retirement?” indicates that the amount of student debt has little effect on 401(k) plan participation. Participation rates among college graduates with low, medium and high loan balances were practically similar, according to the study.

While 401(k) participation went unhampered, the report discovered that retirement wealth accumulation for graduates was affected. Assets from 30-year-old college graduates 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 simple existence of student loan debt (rather than its size) can be a constraint on 401(k) saving.

Even if the payments are manageable, student loans tend to have an impact on a person’s financial decisions, particularly if they decide to save for retirement or not. One author of the CRR study suggests that automatic enrollment and automatic escalation programs can help resolve this dilemma, as most people who are auto enrolled into a retirement plan stick with the default and don’t end up opting out of the plan. 

Potential solutions to ease student debt and enable retirement savings

Employers could also offer student loan debt repayment options or automatic deduction programs for student loan payments (i.e., having student loan payments automatically deducted from a worker’s paycheck each month). An incentive for employers to further assist was provided in the Employer Participation in Student Loan Assistance Act, introduced in Congress by Rep. Danny Davis, R-IL. If enacted, this act would extend the tax exclusion for employer-provided educational assistance to include payments for student loans to either a lender or an employee.

Another possible solution was offered as part of the Retirement Improvements and Savings Enhancements (RISE) Act proposed in the previous session of Congress (though not yet reintroduced in the current session). A discussion draft of the bill, introduced by Sen. Ron Wyden, D-OR, provides that an employer would be permitted to make matching contributions under a 401(k) plan, 403(b) plan or a SIMPLE Individual Retirement Account with respect to “qualified student loan repayments.” In effect, the proposal would treat the student loan repayment as an elective contribution to the plan. A few employers have apparently already taken this approach; under one such program, the employer pays an amount equivalent to 5% of an employee’s salary toward their 401(k) retirement plan when the employee contributes 2% of their salary to pay student loans.

The rise in student loan debt has become a growing policy concern. The CRR brief explores whether that growth has impacted retirement savings. The results are mixed and depend in part on whether one looks at participation or asset accumulation. While student loans appear to have no effect on participation and no significant effect on the asset accumulation of non-graduates, graduates with student loans accumulate 50% less retirement wealth by age 30. Interestingly, as noted above, graduates’ retirement plan assets are not sensitive to the size of their student loans, suggesting that the simple presence of a loan looms large in their financial decision-making. Plan sponsors can use different methods to ease the pressure of student loan debt repayment by their employees.

Read more from Invesco on retirement savings.


Center for Retirement Research, “Do young adults with student debt save less for retirement?”, Matthew S. Rutledge, Geoffrey T. Sanzenbacher and Francis M. Vitagliano, June 2018

Employee Benefit Adviser, “Student loans or retirement? Company aims to help its employees pay for both,” Yasemin Sim Esmen, July 3, 2018

PlanSponsor, “Student loan size does not hinder 401(k) participation,” Amanda Umpierrez, July 3, 2018

Employee Benefit Adviser, “Do young adults with student loan debt save less for retirement?, Paula Aven Gladych, July 13, 2018

Important information

Blog header image: Prasit Rodphan/

Jon Vogler

Senior Analyst Retirement Research

Invesco Consulting

Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.

Prior to joining Invesco in 2008, Mr. Vogler spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.

Mr. Vogler earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He earned a BA degree in history from Rutgers, The State University of New Jersey.

More in Retirement
DCIIA to DC plan sponsors: It’s time to reevaluate distribution options

Time to read: 2 min A recent white paper from the Defined Contribution Institutional Investment Association (DCIIA) suggests that plan sponsors reevaluate their plans’ objectives...