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Personal Finance

Saving and Student Debt Don't Mix

School loans can crowd out a consumer's ability to save for a rainy day.

In the spring, I wrote about research that my former colleague Scott Cooley and I did on the effects student loans have on aspects of personal finance, particularly retirement savings. We recently released an interactive calculator so that users can see for themselves the potential effects of student loan paydown strategies on their net wealth at retirement. In this column, I extend the analysis we performed in our previous research paper.

To recap our earlier research, we found that the presence of student loans is associated with lower levels of retirement savings. Specifically, among HelloWallet users, a $1 increase in student loans is associated with a 17-cent decrease in retirement savings. These results are intuitive: Given scarce resources and competing priorities, workers can only divert so much of their money to paying down student loans and saving for retirement. Student loans, therefore, appear to exert a crowding out effect on retirement savings.

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