Does Student Loan Debt Pose a New Economic Shock to Retirement Savings? Findings from an MIT Agelab Study about Longevity Planning with Loans

Background and Purpose: The United States is witnessing unprecedented rates of longevity, thus the need for earlier and more intentional financial planning for retirement is dire. Emerging research demonstrates that student loan borrowers may take longer to accumulate and save wealth, resulting in lower net worth and retirement savings. This stunting effect may be particularly detrimental for families in the middle and lower socioeconomic strata who are already squeezed to make ends meet. Older adults hold the smallest yet fastest-growing portion of student loans when compared with members of younger age cohorts and default on loans at a higher rate, risking garnishment of Social Security benefits. Student loan debt may be a new and nagging potential economic shock to retirement savings for borrowers of all ages. MIT AgeLab research explores how student loan debt is experienced within families and discovers ways in which borrowers of different ages perceive and prioritize retirement and longevity-planning in light of their student loan debt.

Methods: This research utilized a sequential exploratory mixed method study design that included data from seventeen focus groups (n=100) and a large national survey (n=1,867). Focus groups explored loan-related decisions and impacts, including how borrowers perceive and plan for the future based on their education debt and how debt manifests within family systems. Building on qualitative findings, the national survey investigated how student loan debt influences various domains of borrowers’ lives, including longevity planning and caregiving. A content analysis was applied to qualitative data and both forms of data were merged and compared.

Results: Findings suggest that borrowers of different ages a) experience student loans differently accordingly to their developmentally-located spending and saving priorities; b) weigh considerations about student loan payments with saving for retirement differently according to their planning horizons; and c) foresee student loan debt inhibiting their ability to save for themselves and care for a family member in the future. More specifically, youngest borrowers were more likely than older borrowers to factor the possibility of loan forgiveness into their repayment and retirement savings plans. Middle-aged borrowers often regarded student loans as part of a larger constellation of financial constraints that made saving for retirement and/or providing financial assistance to dependents difficult. Finally, older women often reported pressure to choose between repaying loans for children and saving for their own retirement. Across all age groups, carrying student loans impacted ability, not willingness, to provide care to aging parents.

Conclusion and Implications: Professionals in the field of social work will continue to encounter a growing percentage of individuals and families who are carrying outstanding student loan debt. This research will inform practitioners’ and policymakers’ understandings of how to financially prepare individuals and families for longer lives throughout the life course through policy-making, program provision, advocacy, and a combination thereof. Relatedly, this research will help to understand nudges that can contribute to retirement preparedness and economic vitality in later life for those who have accrued debt and/or other economic shocks to retirement.