Paying off student loans is a huge undertaking and a monumental achievement for millions of Americans. Based on Federal Reserve data, student loan debt in the US reached about $1.833 trillion, with student loan debt growing around 7% annually since 2010.
There are approximately 42.8 million Americans that currently have student loan debt, with an average student loan debt balance of over $39,000.
For those paying off student debt, the idea of saving at the same time—be it for retirement, a down payment, a wedding, or an emergency fund—can seem impossible. But choosing between paying back loans or saving for the future doesn't have to be a binary choice.
Thanks to compound returns,¹ small savings today can provide a major boost to your long term savings. With a sound strategy and plan, you can chip away at your student loans AND chip in to your retirement savings. Here are some actionable steps to consider as you create a roadmap to financial wellness.
Make the minimum payments on your student loans
Already making the minimum payments on your student loans? Keep it up! If you're not, this should be the top priority. Missing minimum payments can lead to late fees and can have negative effects on your credit score.
Contribute to a 401(k)
If you have some money leftover after making your minimum payment and your company offers a 401(k), consider opening an account.
Consider contributing enough to earn the full match, if offered. For example, if your employer offers a 100% match on deferrals up to 3% of compensation, consider contributing 3% of your compensation to your 401(k) so that you receive the full match from your employer.
If there isn't an employer match, contribute an amount that you can afford. Remember long-term returns and compound returns¹ can help grow any retirement savings, and contributions to a 401(k) are deducted from each paycheck using pre-tax dollars. This can lower your taxable income which means you may owe less in income taxes for that year.²
Open an IRA
Don't have a 401(k) plan at work? No problem. You can still open up an individual retirement account like a Roth or traditional IRA. The annual contribution limit on IRAs isn't as high as 401(k) plans, but IRAs are a great option that can help grow modest savings over time and provide some tax advantages.
Look at your high interest student loans
As you may know there are both federal and private student loans with varying interest rates. If you have student loans with high interest rates, consider prioritizing paying off those student loans first to reduce your interest payments. Depending on how many high interest student loans you have, you may want to consider whether it's worth reducing a 401(k) contribution a little in order to pay off high interest rate student loans quicker.
Add more financial tools
There's an additional tax advantage worth knowing about. Employers can now make contributions toward employees' student loans on a tax-free basis—due to the One Big Beautiful Bill, signed into law in July 2025, which made this benefit a lasting part of the tax code (no more expiration dates to worry about).
That means employees can receive up to $5,250 annually from their employer toward their student loans without it counting as taxable income—giving employees a real opportunity to save on interest and pay down debt faster. And starting in 2027, that limit adjusts for inflation each year, so the benefit keeps pace over time.
Financial wellness should be attainable at every stage of life—whether you're just graduating from college or nearing retirement. Finding a balance between paying bills today and saving for the future is a big part of that.
At Gusto Retirement, we offer low-cost mutual funds3, charge transparent account fees4, and have no loan, termination, or 5500 prep fees—all so individuals can have more control over their retirement accounts, and keep more of their investment growth. With the right strategies and a sound game plan, we believe everyone can arrive at a secure retirement and enjoy the journey along the way.
This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
FAQs
Should I pay off student loans before saving for retirement?
Not necessarily—it doesn't have to be an either/or choice. You may want to prioritize making minimum loan payments, then contribute enough to your 401(k) to get any employer match (essentially additional compensation from your employer) and then after that, balance between paying down high-interest loans and continuing retirement contributions.2
Can my employer help pay off my student loans?
Because of the One Big Beautiful Bill, signed into law in July 2025, employers can now make tax-free contributions toward employees' student loans—up to $5,250 annually. This means you can receive employer contributions without paying taxes on them, helping you pay off loans faster. Starting in 2027, this limit adjusts for inflation.
Should I contribute to a 401(k) if there's no employer match?
Even without an employer match, 401(k) contributions offer valuable tax benefits. Contributions are made with pre-tax dollars, lowering your taxable income. Plus, compound returns¹ will help your savings grow over time—the earlier you start, the more time your money has to grow. But ultimately deciding to contribute to a 401(k) is a personal decision, based on your individual circumstances.
What if I don't have access to a 401(k)?
You can open an Individual Retirement Account (IRA)—either traditional or Roth. While contribution limits are lower than 401(k) plans, IRAs still offer tax advantages and help your savings grow over time.
