How to Save for Retirement While Still Paying Off Student Loans

In the United States, about 43 million people have student loan debt, totaling over $1.8 trillion. For borrowers, it can be difficult to meet other financial goals while also making student loan payments. However, it’s possible to do both.

Follow these five tips to manage your student loans while still saving for retirement.

1. Pick the Right Repayment Plan

If you have federal student loans and don’t choose a repayment plan, you’ll be automatically enrolled in the Standard Repayment Plan. Your monthly payment will be determined by the amount you owe and your interest rate, and your loans will be paid off over 10 years.

However, you could significantly lower your monthly payment by choosing another option:

• Graduated Repayment Plan: Your monthly payment will be lower at first, then increase every two years. Loans will be paid off in 10 years.
• Extended Repayment Plan: This plan can be either fixed or graduated. The repayment time frame is 25 years, rather than 10.
• Income-Driven Repayment (IDR) Plan: Monthly payments are based on your income and family size, and are often lower than those on other plans. After a certain number of qualified payments, the remaining balance of your loan may be forgiven.
• Public Service Loan Forgiveness (PSLF): If you work full-time for a qualified government or nonprofit employer, your loans may be forgiven after you make the equivalent of 120 qualifying monthly payments through your repayment plan. You must register for this program.

2. Put Extra Cash to Work

Put extra cash you make toward your retirement or student loan goals instead of automatically adding it to your spending.

“If you receive a work bonus, a larger tax refund, or even cash from your side hustle, use a portion to make extra payments on your loans,” said Laura Scholz, certified financial planner (CFP) and a member of the Educo Advisor Group. “Every dollar counts.”

3. Lower Your Taxable Income

With an income-driven repayment plan, contributing to a traditional retirement account can help you in two ways, by lowering your taxable income and help you reach your retirement goals, according to Josh Gallogly, CFP and founder of Milestones Financial LLC.

“Finding ways to lower your income can help to lower your monthly student loan payment amount when you go to recertify your income the following year,” Gallogly said. Because contributions to non-Roth retirement accounts lower your taxable income, they help build your retirement savings while lowering your monthly payment for the next year.

4. Prioritize Any Employer Match

You don’t have to contribute 15% to 20% of your paycheck to a retirement account to make progress. But you should still pay close attention to the amount you are contributing.

“If your employer offers a retirement plan with a match, make sure you’re contributing at least enough to receive the full match,” said Scholz. A match is essentially free money, so it allows you grow your retirement savings without decreasing how much is left for student loan payments.

5. Be Realistic and Flexible

It’s important to be realistic about what your finances can handle as you juggle competing financial priorities.

“If you have to live on credit cards to fund your lifestyle while making significant contributions into a tax-deductible retirement account, that might be trading one repayment problem for another, especially if you’re carrying a balance on your credit card each month,” said Gallogly.

Stay flexible as your spending and saving needs change month to month. Find opportunities to contribute more to your retirement accounts or make a larger payment on your student loans when you can but don’t sacrifice other areas of your financial well-being to do so.