Balancing Student Debt with Retirement Savings

by Mitchell J. Smilowitz, CPA

According to the National Center for Education Statistics, nearly half of undergraduate and masters students graduate with at least $40,000 in debt. More than 20% graduate with $80,000+ in debt. The numbers are even higher for doctoral students (82% and 70%, respectively).

Many JRB members carry similar levels of student debt. Repaying these loans often looks like a huge impediment to saving for retirement. At the same time, we know it is important to start saving early for retirement – and to continue saving for retirement throughout our careers.

This article provides suggestions on how you can balance the obligation to repay your student loans with the need to save for retirement.

The Math

  • The longer money is invested, the more opportunity compound interest has to grow your nest egg. For example, saving $100 a month in a tax-deferred account, such as the Joint Retirement Board, from ages 22-32 would yield $174,217 at retirement, assuming a 7% return. Delaying ten years and saving from 32-65 would result in $155,307 – even though you are saving for 22 additional years! In general, the benefits of compound interest exceed the benefit from paying off your student debt early. This is especially true for low-interest student loans.
  • If your employer offers to match a portion of your retirement contributions, take maximum advantage of this opportunity.
  • The interest rate on your student loan debt does impact this calculation. If the interest on your student debt is lower than the return you can reasonably expect from investing, it makes mathematical sense to pay the minimum on your student debt and invest the rest for retirement.
  • If you have student loans from a variety of sources, consider consolidating and/or refinancing your student loans to reduce your interest rate and monthly payment.
  • If you have student loans from more than one lender, pay off the higher interest loans first.

Tax Implications

  • Interest on your student loans is deductible, but only up to $2,500.
  • Saving for retirement through a retirement plan such as the JRB’s offers valuable tax advantages. You can lower your taxable income by the amount you contribute to your retirement account. In addition, the earnings grow tax deferred. Taxes are paid only when you withdraw the money in retirement – when you are likely to be in a lower tax bracket.
  • Combine the student loan deduction and the tax deferred retirement contribution to gain maximum tax advantage.

It’s important to balance your obligation to repay your student debt with building long-term financial security for you and your family. After all, you can’t borrow to pay for your retirement.

Please contact the JRB at or 888-JRB-FREE (572-3733) to answer your questions about balancing student debt with saving for retirement.