KEY TAKEAWAYS
- Student loan borrowers typically have more trouble contributing to their retirement accounts compared to their debt-free counterparts.
- Before making extra payments on student debt, younger workers should focus on building up their retirement accounts.
- Workers who are closer to retirement should focus primarily on paying off debt rather than building their retirement accounts.
Student debt is weighing down many borrowers’ budgets, forcing them to choose between paying down their loans and saving more for retirement.
People with student debt are less likely to feel confident they will be able to save enough to support themselves in retirement, according to Fidelity. The average worker had a 401(k) balance of $144,400 in 2025, Fidelity found, based on data from thousands of employer plans. Yet, the average student loan borrower has saved between $29,000 and $43,000 less than that in their retirement savings.
The average borrower pays about $6,000 per year toward student debt—roughly 7% of the 2024 median household income of $83,730. But the average employee contributes about 9.5% of their yearly income to their 401(k) savings, according to Fidelity data.
Additionally, more borrowers are struggling to repay loans after payments and collections resumed last year and several changes were made to student loan repayment plans.
Deciding Whether to Pay Off Debt or Save
Student debt payments can take up such a large share of a worker’s income that little is left to contribute to a retirement account. Missing loan payments can hurt a borrower’s credit score, and if too many payments are missed, the government may garnish a borrower’s wages.
However, if you have money above and beyond your minimum loan payment and necessities, you may be faced with a choice—pay down your student loans or put that money into your retirement account.
Determining whether to prioritize paying down student loans or saving more for retirement often comes down to the interest rate. Student loan interest rates range from 2.75% to 6.8%. The annual return for an average 401(k) retirement account ranges between 5% to 8%, but can be almost as high as 10%.
“This is where personal finance can be a little bit more personal,” said Kendell Frye, a certified financial planner in Boise, Idaho. “Some folks are going to say, ‘I don’t want to rely on the market to [earn a higher return] than the interest on the student loan … other folks are happy to put money in the stock market.”
Workers’ priorities can also vary depending on many other factors, such as age and proximity to retirement.
Younger Workers Should Focus on Retirement First
Employees ages 18 to 49 with student debt had retirement savings that were 20% lower, or about $29,000 less than those of their debt-free counterparts, according to Fidelity research.
Still, it is essential for young workers to start saving for retirement early, Frye said. Workers should also take advantage of their employer’s matching contribution. The average employer will match up to 4.7% of an employee’s income, Fidelity data shows.
“The more dollars that they put in now, the longer they’re invested in the market [giving them more] time for [their savings] to grow,” Frye said. “At least put in enough to meet the match and then direct any excess savings on a monthly basis toward paying extra on those student loans.”
Even if a worker does not have enough income to meet the employer match after paying for their necessities and making the minimum monthly student loan payments, “something is better than nothing,” Frye said.
Workers Near Retirement Should Pay Down Debt
According to Fidelity data, employees over 50 with student debt are even further behind their peers in savings. Their retirement balances were 30% lower, or about $43,000 less, than those of individuals without student debt.
The average borrower aged 50 to 61 has the highest average student loan balance of any age group— $48,203, according to the most recent Department of Education data. For many workers in this group, it’s difficult to set money aside for retirement as they balance additional financial responsibilities such as supporting aging parents and helping their children pay for college.
Frye typically suggests that most workers retire with as little debt as possible. For some, that may mean diverting funds that would otherwise go to their retirement account to pay down student loans.
“The reason for that is kind of the opposite of what we were talking about with the younger folks,” Frye said. “Every dollar that you put into your retirement doesn’t have as much time to grow. So you’re probably going to get more juice, so to speak, out of your dollars by paying off a debt with a high interest rate than putting it into the market.”
For other student loan borrowers, it may make sense to work longer to pay off their debt before retiring.
“[Studies show] working longer … is going to have the most impact on a successful retirement,” Frye said. “It is well worth it if paying off the student loans means staying in the workforce for another 12 to 24 months.”