Student loans now impact every demographic, and that’s bad news for people struggling to save for retirement.

Even though interest rates are lower, overall student debt has soared during the pandemic, regardless of a borrower’s age or occupation. Some 44 million Americans now owe an estimated $1.75 trillion in student debt.

The spiraling amounts of debt are having a serious impact on every generation’s retirement outlook. A substantial majority—79%—report that student debt is cutting into their ability to save adequately for retirement, according to a Fidelity Investment study of American Student Debt. The main challenges are saving nothing or very little for retirement, and taking out loans against 401(k)s.

Fidelity Investments 2020 Student Debt Snapshot

Fidelity analyzed data from nearly 60,000 Student Debt Tool users, who shared loan information that represents more than 5,000 companies as of Sept. 30, 2020.

Nearly one in five of the tool’s users (18%) reported contributing nothing to their 401(k), and slightly more than that (22%) said they were able to contribute just 1.5% of their salary to retirement savings. Almost a quarter (23%) said they had an outstanding loan against their 401(k).

Baby boomers have the highest average monthly payment, at $722 in 2020, based on an average balance of $75,000.

Fidelity also examined which occupations have higher amounts of debt, which suggest higher monthly payments. In most cases, average loan balances show a rise from the previous year. The industry with the highest loan balance, for example, is the private health and social assistance sector have an average balance of $83,000, up from $75,000 in 2019. That outstanding debt results in an average monthly loan payment of $801, up from $685 a year prior.

That means healthcare workers are not only on the frontlines every day caring for others during the pandemic, but they are also the ones struggling the most with student debt, points out Asha Srikantiah, head of Fidelity Investments’ student debt program.

Student Debt Afflicts All Ages

The problem of student debt is better understood than it was five years ago.

Previously, it was perceived as a young person’s problem, Srikantiah says, confined to the college loans people would pay off in their 20s. The general expectation is that graduates would be done paying off the loans in their 30s. “That’s not the case,” he says. “Second, it’s not only the fact that people are carrying debt for much longer, because they have great debt loads. The demographics taking out debt have changed.”

Baby boomers in particular are carrying ever-higher student loans, with the amount of debt increasing by 33% over 2019. These are loans, whether federal or private, that boomers are taking out in their own names for their children’s college educations. The so-called Parent PLUS loans—a federal loan available to the parents of undergraduate and graduate students—are responsible for the rising numbers.

For those approaching retirement in their 50s and early 60s, not contributing enough can mean inadequate savings and over-dependence on Social Security. But there is also a downside for younger people. They are in the best time of their lives from an investing perspective, Srikantiah says. Not saving enough means they miss out on the opportunity to take advantage of compounding interest over several decades. “They will start out farther behind their peers,” Srikantiah says.

Also worrisome is that people are in debt for longer periods of time. “The perception used to be people would carry it for 10 years or so,” Srikantiah says. “Now it’s closer to 20 or 25 years. If you are paying $200, $300, or $400 a month, that will have a direct impact on your ability to [save enough to] get by and enjoy your life in retirement.”

How Student Debt Accumulates

Several key factors play a part in the issue of student debt, according to Mark Kantrowitz, vice president of research at Savingforcollege.com and the author of How to Appeal for More College Aid.

College students tend to borrow the highest amount instead of the actual sum needed. “When they get their refund—after student aid is applied to fees and tuition, the rest is refunded—the student spends it,” Kantrowitz says. Doing so just adds an unnecessary amount to the debt they are incurring.

“In most cases, it’s student loan money that has to be repaid with interest,” Kantrowitz says. “Every dollar you borrow is going to be $2 when you repay it.”

People also tend to dismiss the amount of debt they’re taking on when choosing a college, Kantrowitz says, but that choice of the institution has a big consequence. “Often families want to send their child to the most expensive, not the least expensive college,” he said. “Financial fit is not factored into the decision. Oftentimes parents say, ‘You get in and we’ll figure out a way.’“

That can easily lead to too much debt for parents as well as students. In either case, an overly burdensome debt load can mean the student drops out when they can no longer afford to attend, or they keep on piling up debt.

“It’s made harder by colleges having award letters that blur the distinction between awards and loans, which decreases the awareness of the debt and leads to people borrowing more than they should,” Kantrowitz adds.

Saving for Retirement Is Still Critical

In short, failing to save enough of an amount—or even any amount—for retirement because of outstanding student loans will have a substantial impact on people’s retirement readiness. Older people could face a serious shortfall in savings, and younger people will miss out on the advantage of a long investing time horizon.

So, even when saving is difficult, it’s better to save any amount at all, says Luis Strohmeier, CFP, partner and wealth advisor at Octavia Wealth Advisors, even if it’s 1% or 2%. If your employer offers a matching retirement contribution, you can actually double your savings by getting that money. “When you factor in what you save on taxes,” Strohmeier said, “it’s more palatable.”

Those between the ages of 20 and 40 whose filing status is single, head of household, or married filing separately and make less than $144,000 should look into a Roth IRA. The investing time horizon, which is several decades, means you will gain the advantage of compounding interest. “That money is going to be tax-free [at retirement],” Strohmeier said.

Retirement Savings Strategies

Two strategies can make it easier to save more money. If you’re one of the many people who gets an annual increase in salary, save that extra money. Salary increases have dipped in 2020 to an average of 2.9%, from 3.3% that was expected before the pandemic took hold, according to SHRM.

“If you were living without it, why not put it away?” Strohmeier said. Although most people may be unlikely to save their entire raise, taking even half the amount and saving it puts your hands on newfound money. The same advice goes for bonuses. “You don’t necessarily count on these, so save them,” Strohmeier said.

Other ways to come up with money to save for retirement can come from a hard look at your expenses. Comb through your budget—a necessity for everyone, Strohmeier says—and account for every dime you spend. Look for the things you don’t truly need. Once you figure out some negotiable items, such as coffee or snacks that you buy during the workday, multiply the daily figure you were spending on these by 20 to arrive at a total you can save each month.

Don’t overlook the positive impact retirement saving can have on your credit score. “Saving money in a retirement plan improves your score,” Strohmeier said, “because you are showing liquidity when you apply for loans, even if it can’t be used as collateral.”

Avoid taking a loan from your 401(k) at all costs. “It’s probably the worst move you can make,” Strohmeier said.

The Bottom Line

People carrying student loan balances are struggling to save for retirement. Given that the debt load is such a burden for so long, it can make you wonder if post-secondary education is even worth it.

All things considered, the answer’s still yes. College debt drags on saving for other priorities and spending, but having a college degree generally garners a higher income, Kantrowitz acknowledges. “If someone didn’t have student loans because they didn’t go to college, they might not have as much money,” he notes. “A lot of these analyses never ask that.”