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Choosing to prioritize paying off your student loans or saving for retirement is a personal decision, and there’s no “right” answer that works for everyone. On the one hand, saving for retirement now means you’ll reap the substantial benefits of compounding interest. On the other hand, paying off your student loans more quickly will get you out of debt and save you money because you’ll pay less in interest over the life of the loan. There are pros and cons to each choice, so here’s how to make the right decision for you:

1. Consider your financial situation.

Your current financial situation will provide insight into what your priorities should be. For example, we don’t recommend saving for retirement if doing so would cause you to default on your student loans, which will destroy your credit and harm your financial security. However, if you’re able to make your loan payments each month, it’s a good idea to start putting money away for your future.

2. Evaluate your interest rates.

In general, if you have extremely low interest rates on your student loans we recommend saving for retirement. In this case, aggressively paying off your loans won’t save you much because your interest rates are already so low. If you currently have high interest rates, however, you’ll want to either prioritize paying off your student loans or consider refinancing to qualify for a lower interest rate.

3. Does your employer offer a 401(k) match program?

If your employer matches your 401(k) contributions, putting money in that program should be a priority as long as it doesn’t cause you to default on your student loans. In most cases, you’ll earn more money through a match program than you would save by aggressively paying off your loans. For example, if you put $3000 into your 401(k) and your employer matches 50%, you’ll receive $1500 of free retirement money. However, if you put that same $3000 towards your loans, the most you’ll save is a few hundred dollars in interest payments.

The bottom line…

If saving for retirement won’t cause you to default on your loans, it’s a smart idea to start putting money away now – especially if your employer matches your 401(k) contributions. To free up additional money to put into your savings, we recommend looking into refinancing your student loans. If you’re in a strong financial position you may qualify for both a lower interest rate and a lower monthly payment, allowing you to put the money you save towards your future.


Please note that the information provided on this website is provided on a general basis and may not apply to your own specific individual needs, goals, financial position, experience, etc. LendKey does not guarantee that the information provided on any third-party website that LendKey offers a hyperlink to is up-to-date and accurate at the time you access it, and LendKey does not guarantee that information provided on such external websites (and this website) is best-suited for your particular circumstances. Therefore, you may want to consult with an expert (financial adviser, school financial aid office, etc.) before making financial decisions that may be discussed on this website.