Understanding the impact of student loan debt on employee's retirement

Statistics show that almost half of young families have significant student loan debt. The debt, or the employee’s understanding of it, may impact those employee’s retirement readiness plans. How can employers help educate their employees, especially those who may want additional degrees so they can specialize, about debt, savings and retirement planning? Here are a few key areas that may be helpful.
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It’s not just the younger employees. While many think that student loan debt is crippling those aged 25 to 40, many of those in Generation X are quietly suffering through their own budget nightmares.  And those nearing retirement may be bearing the weight of loans for their children.  While younger workers hold an average of $21,000 in student loan debt, those between ages 40 and 49 hold $27,000 and even those over age 60 hold $19,000. According to studies in 2014, households that have student loan debt face a significantly higher risk that they won’t be able to maintain their standard of living in retirement. The average student loan debt now is nearing $30,000.
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Most employees with student loan debt struggle with understanding whether to pay off the debt or save for retirement. Recent studies show that nearly half of those with student loan debt forgo saving for retirement until their student loan debt is paid. Unfortunately, those employees lose the ability to benefit from compounding interest, so that even a small amount of retirement savings could help them be more ready for retirement.  
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In more stark terms, college graduates without student loans are predicted to have double the amount saved for retirement at age 30 than those who have any amount of loans. This holds even when the amount of debt is removed; it’s the presence of any student loan debt that can impact readiness. And for those with graduate level loans, they may feel like they can’t ever retire.  That attitude may keep those with significant loans from setting anything aside for retirement.
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Conquer the all or nothing attitude: Sponsors can help employees with student loans understand that saving something small is better than saving nothing at all. And no matter how old an employee is, saving earlier is better.
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When it really is Either/Or. For those employees with incredibly tight budgets, paying off the student loan should come ahead of retirement savings. If an employee truly can’t find any excess in their budget to put towards retirement, plan sponsors can help educate employees about the best ways to pay the student loan debt off first. As one commenter noted, paying off a loan with a 7% interest rate is a 7% gain, no questions asked. The same certainty can’t be found in the stock market.
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Know that there’s no escape: Over 100,000 student loan borrowers over age 60 had an average of $140 taken from social security benefits monthly as garnishment for defaulted student loans.
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Play the Options: Sponsors can help employees understand repayment, modification and consolidation options through workshops and online tutorials. This is also true for older employees who may be cosigning on their children’s loans. Those employees may benefit from understanding the obligations of cosignors if their child fails to make payments. Additionally, some debt repayment plans may offer bonuses for contributing something, anything, to a 401(k) plan.
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Consider repayment as a form of compensation: Some employers are now offering student loan repayment programs for employees. This may be an attractive option for employers needing a highly educated workforce. While this benefit is currently taxed as income, some legislators are working to pass legislation that would allow at least a modest $5000 per year in payments to receive tax-free treatment.

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