Should You Pay Off Student Loans or Save for Retirement?

Molly Carapiet, VP of Eagle Lending Product and Operations, First Republic Bank
April 8, 2019

When dealing with a significant student loan balance, you might be tempted to pay off your debt as quickly as possible. You may have considered putting your other financial goals on hold so you can focus on eliminating your debt. However, when it comes to saving for retirement, time is your greatest asset, so it’s essential to find the right balance with paying down your debt.

Here are six questions to ask yourself when deciding whether you should pay off student loans or save for retirement.

1. Are you making required payments on your student loans? You should always make on-time payments to your lender for the full amount due each month. Failure to do so could increase the amount you owe, hurt your credit and make it difficult to qualify for student loan refinancing. Learn more about student loan repayment strategies.

2. Are you taking advantage of “free” money? Many employers offer matching contributions when you contribute to your 401(k). The amount of this match varies by company and is typically capped at a certain percentage of your income. But whatever your employer is willing to match, it should be the minimum you put into your account; otherwise, you’re leaving “free” money on the table.

3. What is the current interest rate on your student loans? Some professionals who completed grad school in the last decade have student loans with interest rates exceeding 6%. As a general rule of thumb, you should focus on paying down these higher interest rate loans. For loans with interest rates that fall below this threshold, many experts recommend making your required monthly payment and investing what remains in a retirement account. Keep in mind that refinancing could help you get a better rate.

4. Could you refinance? Another way to tackle high interest rates is through student loan refinancing, which could potentially lower your interest rate or monthly payment and decrease your costs over the life of your loans. This enables you to potentially pay off your debt more quickly and have more money to put towards your retirement. Learn more about the benefits of student loan refinancing1 and calculate your personalized rate in under a minute using our student loan refinancing calculator.

5. Are you already maxing out your retirement contributions? There is a limit to how much you can contribute to retirement accounts each year. If you expect to easily meet the 2019 limits ($19,000 towards a 401(k) and $6,000 towards an IRA), you might want to use your additional funds to pay off your debt, since you can’t invest any more in these retirement accounts. But if you’re far from these maximums or haven’t opened an IRA, bumping up your contributions is worth considering.

6. What are your other financial goals? Paying off your student loans and saving for retirement probably aren’t the only financial goals you have in mind. You need to balance these objectives with other goals like buying a home, paying for a child’s education or growing your business. Understanding your overall goals, cash flow needs, risk tolerance and tax implications can help you craft a complete financial plan. Helping you think through these things is where a private banker might come in handy.

When it comes to paying down student loan debt or saving for retirement, you don’t always have to choose one or the other. Balancing these priorities is often in the best interest of your financial future. 

Refinance your student loans – fixed rates as low as 1.95% APR with discounts.


1. Terms and conditions apply. The terms of this loan may differ from your current loan(s). For example, this loan does not contain special features such as forbearance periods or income-based repayment plans available for some student loans. This loan may not be dischargeable in bankruptcy. This product is not available in all markets. For a complete list of locations, visit This is not a commitment to lend or extend credit. Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of Use.