How to Save for Retirement With Your Student Loans

Between rent, transportation, food, recreation, and, the cherry on top — student loans — recent graduates have tons of expenses. The burden of paying off life’s many expenses on a starting salary means recent grads often wait to start saving for retirement until they’ve paid off their student loans.

At Credible, we want to enable student loan borrowers to find the best options to get ahead financially. Here’s what we think borrowers should know about their student loan debt, and some tools to help student loan borrowers start saving for retirement today.

Is student loan debt a negative impact on my finances?
Contrary to popular belief, having debt is not all bad. “Good debt” like mortgages or student loans can be used to boost your credit score and establish legitimacy in the eyes of a lender. “Bad debt” like credit card debt, car loans, or even student loans with high interest rates can rack up interest charges every month, significantly increasing the overall amount you pay over the life of the loan.

The best plan of action is to focus on paying off bad debt as quickly as possible while making consistent payments on the good debt. Dedicating payment towards bad debt with high interest rates will help you save money that can be used to fund your retirement.

Should I direct as much payment as possible to my student loans?
Many young borrowers make the mistake of not saving money until they’ve paid off their student loan debt. Many see their student loan debt repayment as a short-term problem, and saving for retirement as a long-term issue. What these borrowers fail to realize is how much money they’re losing out on by waiting to start saving.

Because interest on retirement savings compounds over the years, someone who invests a small amount of money early on will see their money grow exponentially over time. Those who choose to postpone saving for retirement miss out on thousands of dollars worth of interest when it comes time to cash out.

Though it’s important to start saving for retirement as soon as possible, there are situations where it makes more sense to pay off student debt first. If you have a high interest rate on your student loans, it’s likely you’ll be paying more in interest than you’re earning by putting away that money for retirement. In cases like this, it’s best to either pay off the loan as quickly as possible, or look into refinancing to get a lower interest rate.

Tips to Maximize Your Savings

  • Begin saving ASAP – The fastest way to maximize your retirement savings is to start early. The sooner you start saving money, the more interest will accrue in your account over time.
  • Build an emergency fund – Financial experts recommend creating an emergency fund of 3-6 months’ worth of expenses. You never know where life will take you and it’s crucial to put extra money away for a rainy day.
  • Explore investing options – There are many options available to young borrowers for retirement. Check with your employer and see if they offer a defined contribution plan like a 401(k). Those who don’t have a defined contribution plan available to them should explore IRA’s and speak with a financial adviser to map out a retirement strategy.
  • Refinance your student loans – If you have high interest rate loans, refinancing can unlock great savings by reducing your interest rate. If you extend the term of your loan — the number of years you’re making payments for — you’ll further reduce your monthly payment, which could allow you to allocate more money to your retirement account. Keep in mind that extending your loan term could increase total interest payments made over the life of the loan, reducing the effectiveness of this strategy.  

In order to see how much you can save by refinancing your student loans and start funding your retirement today, visit Credible.

Kristen Caron is a member of the DailyWorth Connect program. Read more about the program here.


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