Retirement plans could be an indirect beneficiary of President Joe Biden’s recently-announced plan to forgive up to $20,000 in federal student loan debt, according to financial professionals who discussed the matter with the Wall Street Journal.
While it remains unclear exactly how Americans who benefit from debt forgiveness will choose to apply those funds in the future, since they could choose to apply those funds to paying down other debts or financing purchases they may have planned for durable goods. Either way, less money going toward these debts could mean more money for other goals, including retirement.
“We’re hopeful folks who are going to benefit from this forgiveness can now have more money each month to devote to other financial goals,” said Kirsten Hunter Peterson, a VP in the research arm of Fidelity Investments’ workplace-retirement division, to the Journal.
However, recent indications have also shown that student loan debt has been directly attributed to a lack of retirement savings among some people, the Journal explains.
“In a 2021 survey conducted by the Social Policy Institute at Washington University in St. Louis, researchers found that 24% of those polled would save more for retirement if $10,000 of their student-loan debt were forgiven,” the Journal reports. “That figure increased to 29% when respondents were asked if they would set aside more for retirement if $20,000 were forgiven.”
Stephen Roll, associate director of research at the Social Policy Institute, offered that some of these funds could be allocated toward retirement savings as a result. However, there could be other more pressing financial matters to tackle considering the economic environment.
“Down the road, maybe it facilitates more retirement savings,” Roll told the Journal. “But low-income and young people have more pressing financial priorities they have to get in order.”
However, student debt has grown to encompass far more than just younger-to-middle-aged Americans. Late last month, an article published in The New Yorker magazine indicated that American seniors at or over the age of 62 had become the fastest-growing segment of student borrowers in the country, with as many as 20% of the 45 million Americans who hold student debt being over the age of 50.
This means that there could be an effect on the finances of seniors who have chosen to provide assistance to family members through the use of federal student loans, but it remains to be seen what the full impact of this move by the White House will be.
“Even if most of those student-loan borrowers don’t give priority to boosting retirement savings over, say, paying off credit-card debt, the government’s forgiveness plan may lead millions to rethink their budgets and financial goals,” the Journal notes.
Read the article at the Wall Street Journal, subscription required.
