Financial Face-off: Student Loans vs. Retirement

Student loans or secluded home? That’s the question many older adults face when trying to pay off college debt of their own (or their kids) and save for retirement.

Many older adults today face the difficult choice between saving for retirement vs. paying student loan debt. The loans could be for their own education years ago or more recent borrowing to send their children to college.

It's tough enough paying student-loan debt when you are a 20-something year old, but imagine dealing with it when you're in your 60s or 70s. That’s the dilemma for two generations – the Mature/Silents (born 1923 to 1944) and Baby Boomers (born 1945 to 1964), as tuition costs continue to outpace retirement savings.

Older Adults, Old Debt

Outstanding federal student debt held by Americans 65 and older has increased significantly in recent years, growing from $2.8 billion in 2005 to about $18.2 billion in 2013, according to the Government Accountability Office1.  

More than 80 percent of outstanding balances are from older adults who paid for their own education, notes the GAO’s 2014 report, with only 18 percent attributed to loans used to finance studies for a family member.

However, the default rate for these loans is double that of borrowers between the ages of 25 and 49, according to the GAO.

Such debt can reduce net worth and income, thereby diminishing overall retirement financial security for older Americans.

Debt Versus Saving

“For older adults, having retirement savings is a more pressing need than paying back loans,” he added. “If the rate of return in the stock market is higher than the rate you have to pay in student loan interest, you come out better net-net investing in retirement. You can make minimum payments on your loan, but you can’t minimize your quality of life.”

The effect of owing thousands of dollars of borrowed debt, while on a diminished income, can be onerous, said Joe Jennings, a director of PNC Wealth Management who frequently works with clients on retirement and education investment strategies.

“Generally in situations like this, the rule of thumb is to prioritize retirement savings over education. Save what's left over for children's education,” he said.

Dealing with Student Loan Debt

On average, a college graduate’s average loan debt ranges from $18,000 to $32,000.  As Mature/Silents and Boomers age into retirement, the presence of student loan debt can be especially daunting. Unlike other types of debt, struggling borrowers generally cannot discharge federal student loans in bankruptcy.

Student loans can remain unpaid for more than a year before the Department of Education takes action. However, once initiated, those actions can have serious consequences.

From 2002 to 2013, the number of borrowers 65 and older who had their Social Security benefits reduced because of delinquent student loans jumped roughly 500 percent, according to GAO.

While the GAO report does not offer recommendations for avoiding student loan debt or defaulted loans, Jennings points out that the easiest way to sidestep long-term debt is to determine how much debt the family can take on before walking into college.

“Realistically, retirees should aim to balance savings and paying debt, but that’s not always possible. We know we can use loans for school, but you can’t borrow loans for retirement,” he said.


1Government Accountability Office, GAO-14-866T, entitled “Older Americans Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Retirees,” Sept. 15, 2014.

Joe Jennings, PNC Wealth Management director

Student loan debt impacts consumer spending across demographics. We’re seeing that with younger adults in their 20s who delay home and car purchases, adults in their 30s who are starting businesses at a slower rate and those 40 and older, who are paying down debt, instead of saving for retirement.


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