Student Loan Debt Can Constrain Workers Even Into Retirement

While student loan debt is often seen as a major financial constraint for young people early in their careers, it also severely impacts the well-being of pre-retirees and retirees, according to a panel of experts who spoke at the Defined Contribution Institutional Investment Association Academic Forum last week in New York City.

According to DCIIA researchers, data from the third quarter of 2024 show that 42.2 million U.S. citizens currently have student loan debt, totaling about $1.6 trillion. Of those, there are 8.8 million borrowers nearing or in retirement that owe $380 billion in student loans.

Thomas Korankye, a professor at the University of Arizona’s Norton School of Human Ecology, explained that there are several “at risk” groups most likely to suffer from mounting student loan debt. These groups include African-American retirees, those managing payments for a postgraduate degree, those with financially dependent children, those with low financial knowledge and those experiencing financial fragility.

“Some financially fragile people cannot even come up with a $2,000 emergency [expense], and these people are more at risk of [carrying] student loan debt into retirement,” Korankye said.

The professor also noted that 25% Americans aged 65 or older rely on Social Security benefits for at least 90% of their family income. If these people take student loans into retirement and default on their repayments, the Social Security Administration can use their retirement and disability benefits to repay student loans instead. As a result, Korankye said, those with delinquent student loans in retirement are more likely to experience poverty due in part to reduced Social Security benefits.

In addition, Korankye found in his research that those who take out student loans to pay for their children’s education tend to report more adverse effects on their financial well-being.

Employers Should Get Creative

Carl Gagnon, formerly the assistant vice president of global financial well-being and retirement programs at the Unum Group, spoke about a program he helped develop at Unum to help employees pay off student loan debt. Employees at Unum are able to trade in excess paid time off they do not plan to use in exchange for a payment toward their student debt.

Gagnon recommended that employers get creative with their benefits and figure out ways to help employees with the resources the company already has.

“The employees will love it, and the company will love it,” Gagnon said. “Your CFOs will love it because you’re not really touching or adding to the pie. … In this day and age, companies always say, ‘Your pie is your pie.’ You can slice it however you want; you’re not getting more money for that pie.”

Paul Kovarksy, vice president of partnerships at Candidly, an artificial intelligence-driven student loan debt and savings platform, said employees often do not contribute to their retirement plans when they are burdened with student loan debt. He also warned that under the upcoming administration of President-elect Donald Trump, student debt is not likely to be forgiven, so he argued there is now more value in offering student loan benefits to employees.

“Employers … have no excuses for not thinking about [student loan] solutions,” Kovarsky said. “I would encourage [employers] not to think about student debt in isolation. It is a companion to retirement readiness, so I would encourage folks to think about it as part of their overall retention and recruitment strategy.”

Political Impact Could Be Forthcoming

To further help employees address their student debt, Korankye said it is important to educate participants about income-driven repayment plans, which base monthly student loan payment amounts on income and family size. By the end of the repayment period in an IDR plan, any remaining balance not paid off is forgiven.

That option, however, may be under threat. President Joe Biden’s Saving on a Valuable Education (SAVE) Plan that created the benefit is facing court challenges, and the U.S. 8th Circuit Court of Appeals is likely to issue a ruling within the next few months. Currently, the plan’s 8 million enrollees are in forbearance through April, meaning their loans are essentially paused while the Biden administration defends the plan in court.

Trump is not likely to support the broader forgiveness program, which he criticized on the campaign trail, the panelists noted.

Certain student loan relief programs may remain under Trump, such as the Public Service Loan Forgiveness program, which was signed in 2007 and forgives student debt for public workers after 10 years in repayment.