Retirement I'm paying off student loans. How am I supposed to save for retirement?

If you’re living with student debt, then there’s a good chance you might be tired of hearing, reading or being told to save for retirement. With the average debt among student loan borrowers around $37,850¹ – and the total student debt load for Americans over $1.7 trillion, more than two times what Americans owed nearly two decades ago² – feelings of exasperation are completely understandable.

But not saving for retirement until you pay down your student loan debt can come at a significant cost to your future wealth. You may be able to pay off your student loan debt and save for retirement at the same time. It doesn’t necessarily have to be one or the other.

People often tackle their finances sequentially. For example, people will focus on their student loan debt before saving for retirement, and then by the time they pay it off, the focus shifts to the kids, and retirement continues to sit on the back burner. All the while, their money could have been working alongside them in the form of compound interest.

Know your savings hierarchy

While it’s important (and often difficult), to be future-focused for your savings, especially with student loan repayments, it’s important to think about what you need to save for the short-term. Before you put every extra dollar toward your student debt – after making your monthly minimum payments, of course – build up an emergency reserve of three to six months' worth of living expenses. Even having $2,000 saved can rescue you from relying on credit cards and racking up high-interest-rate debt. With your emergency reserve taken care of, consider whether you are eligible for tax-advantaged long-term savings vehicles like employer-sponsored retirement plans and Individual Retirement Accounts (IRAs).

If your employer offers a retirement plan then consider participating, and, if a match is offered, contribute enough to meet it. If you don’t have access to an employer-sponsored plan – or you’d like to save more outside of one – then look into opening an IRA.

Not all debt is created equal

There’s high-interest-rate debt and there’s low-interest-rate debt. There’s a good chance your student debt is the latter, but be sure to check. When paying down any debt, you can think of its interest rate as a direct return on your money. That’s why, if you have any high-interest debt, like credit card debt, prioritize paying it down before your low-interest debt, because it’ll save you more money in the long run.

If the interest rate on your student debt is lower than 6.8%, which is approximately the national average,³ then consider paying the minimum you’re obligated to repay each year, after consulting with a financial advisor to determine the best strategy for you. After that, consider putting the rest of the money you can spare into paying back higher-interest debt and saving for retirement. That’s because your investments may grow over the long term at a higher rate, given how markets historically have performed.

Explore repayment strategies

If making additional payments toward your student loans doesn’t come at the cost of your retirement savings, you could pay your debt down faster. If you have multiple loans from different lenders, then another strategy is to use the “avalanche method” and pay them off in order of highest interest rate to lowest. Another option is to look into student loan refinancing, which can include both federal and private loans. If eligible, you may consider consolidating your loans into one new loan that ideally has a lower interest rate. You can also look into whether you’re eligible for Public Service Loan Forgiveness.⁴