TIAA-MIT Agelab study finds student loan debt significantly impacts retirement savings, longevity planning and family relationships
One-quarter of those not saving for
retirement cite student loans as the reason; Parents and grandparents borrowing
for loved ones are hardest hit
NEW YORK July 30, 2019 – A large majority of
American adults (84%) report that student loans are negatively impacting the
amount they are able to save for retirement, according to new research sponsored
by TIAA and conducted by the MIT AgeLab. Nearly three out of four (73%)
borrowers report they are putting off maximizing their retirement savings,
saying they expect to begin or increase their contributions once their student
loans are paid off. Among those who are not saving for retirement at all, more
than one quarter (26%) point to the need to pay off student loan debt as the
reason.
The yearlong study, which explores the intersection of student loan debt,
longevity planning and family dynamics, shows that life stage—and who the loans
are being taken out for—plays a key role in the balancing act of paying off
student debt and saving for retirement.
Borrowers of all ages, including parents and grandparents,
are making financial sacrifices to repay student loans
Among 25- to 35-year-olds who are not saving for retirement, 39% say they
are prioritizing student loan payments. Of the parents and grandparents taking
out loans for children and grandchildren, 43% say they will increase retirement
savings once the student loan is paid off. In focus groups, women, in
particular, described the struggle of sacrificing their own financial security
in retirement in order to put their childrenfs education and wellbeing first.
gTo be sure, getting a college degree remains one of the smartest
investments a person can make in their financial future – but saving for
retirement is equally important,h said Roger W. Ferguson, Jr., president and CEO
of TIAA. gWe believe that advice and coaching are key to navigating what can
seem like competing demands. TIAA has found that people who engage with
qualified financial professionals are better equipped to make decisions about
paying for education for themselves or a loved one without sacrificing their
future financial security.h
Families struggle to discuss and understand student
loans
Many borrowers also report that they did not discuss finances—including
student loans—with their family. In fact, 40% of borrowers with loans for
themselves and 36% of borrowers with loans for a child or grandchild report
never speaking with their family about their student loans.
In many cases, family members arenft aware of the financial strains caused
by student loans. Over half of borrowers with loans for themselves (51.4%) and
nearly one-third of borrowers with loans for a child or grandchild (31%) report
their family knew gnothingh or gvery littleh about their student loans.
Student loans place burdens on couples
According to the study, student loans are also impacting personal romantic
relationships. The likelihood of loans affecting borrowersf romantic
relationships varies with their loan amounts. Only 6% of borrowers with a loan
amount of $9,999 or less report a negative effect on romantic relationships,
compared to 34% of borrowers with an initial loan amount of $200,000 or
more.
Borrowers with higher initial loan amounts also report greater loan-related
delays to traditional milestones.
- Getting married: 13% of borrowers who took
out $24,999 or less report that loans affected the timing of their marriage,
compared with 37% of those who took out $150,000 or more.
- Having children: 19% of borrowers with an
initial loan amount of $24,999 or less say that the loans affected when they
had children, compared to 51% of those with $150,000 or more.
- Buying a home: Over a third (36%) of
borrowers with an initial loan amount of $24,999 or less and the majority
(74%) of those with $150,000 or more say that the loans affected when they
planned to buy or bought a home.
The study also shows that unclear expectations and poor communication prior
to repayment can spark conflict for couples. When the contribution amount was
not clear from the beginning, borrowers were more likely to report ongoing
conflict with their families or partners due to the student loans.
- 36% of participants who were currently contributing to their partnerfs
education who said their current contribution amount was not clear from the
beginning report conflict, compared to 20% of participants who say their
contribution level was clear from the beginning.
- 42% of borrowers who say their current contribution amount for their own
student loans was not clear from the beginning report conflict, compared to
only 17% of those who say their current contribution level was clear from the
beginning.
gWe have always known that longevity can be optimized by having access to
retirement security and support from family,h said Joseph Coughlin, Director of
the MIT AgeLab. gWhat we now know is that for borrowers across the age spectrum,
student loan debt can create shocks to both.h
Student loans impact how people perceive their financial
preparedness
The study also shows that student loan debt is limiting peoplefs confidence
in their ability to meet their financial goals.
To boost financial confidence and preparedness, education is key. People
want and need more financial education to understand and prepare for the impact
of their student loan debt. The study reveals that:
- 23% of participants say they were not at all knowledgeable about student
loans before incurring them.
- Only 6% of participants characterize themselves as being extremely
knowledgeable about their loans in advance.
- Only 7% of participants report doing their own research before deciding
how much to take out in student loans.
- Only 8% of parents and grandparents and 3% of student borrowers used the
services and advice of a financial advisor when making decisions about funding
higher education.
When borrowers were asked what would help them most in their financial
situation, earlier training about finances and money management were cited as
the most potentially beneficial strategy for tackling student loan
repayments.
gPolicymakers, employers, financial services companies and educational
institutions all play an important role identifying and creating solutions,h
Ferguson said. gEnsuring people fully understand their options and the impact of
any loans they do take, along with innovative approaches to retirement plan
design that enable employers to jumpstart peoplefs savings while theyfre paying
down their debt, can help address the issue.h
Additional information regarding the study, including an executive summary,
can be found
here .
Study Methodology
The MIT AgeLab conducted a two-part mixed-methods study between February
2018 and April 2019. The first part consisted of small, in-person focus groups
with 88 participants, in conjunction with pre-group and follow-up online
questionnaires.
The second part of the study involved a larger online national survey of
1,874 participants. In both parts of the study, participants ranged in age from
25-75, and were currently contributing to student loan payments for their own
and/or an immediate family memberfs higher
education.
About TIAA
With an award-winning 1 track record for consistent investment
performance, TIAA (TIAA.org) is the leading provider of financial services in
the academic, research, medical, cultural and government fields. TIAA has $1.1
trillion in assets under management (as of 6/30/2019 2) and offers a
wide range of financial solutions, including investing, banking, advice and
education, and retirement services.
About the MIT AgeLab
The MIT AgeLab was created in 1999 to invent new ideas and creatively
translate technologies into practical solutions that improve the quality of life
of older adults and those who care for them. The AgeLab applies
consumer-centered systems thinking to understand the challenges and
opportunities of longevity and emerging generational lifestyles to catalyze
innovation across business markets.
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