How student loans stop people from saving for retirement

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When she graduated, she was eager to wipe out her education debt. She decided to withdraw $10,000 from her 401(k) plan.

After struggling to find a high-paying job, she wasn’t able to free herself from her student loans as fast as she had hoped. Meanwhile, the balance kept growing, thanks to interest. When she did find work, any extra money went toward her debt.

Her attitude about her golden years has since soured.

“I can’t ever retire,” Koster, 44, said. “The student debt just compounds and will be with me until I die.”

Already, many Americans are financially unprepared to exit their working lives. As the outstanding student debt balance in the country swells – with more people holding more debt —retirement is just further at risk.

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Recent research shows how student loans can force people to forgo saving for their later decades.

For example, by the time college graduates reach 30, the ones without student loans are predicted to have double the amount saved for retirement as those with them, according to a study by the Center for Retirement Research at Boston College.

Further, people with education debt have lower 401(k) balances than those without it, according to data out this month from the Employee Benefits Research Institute.

“Student loan payments are crowding out retirement,” said Maggie Thompson, executive director of Generation Progress at liberal think tank the Center for American Progress. “The magic of compound interest is working on the side of the lender.”



Source : CNBC