I wonder if you’re like me?

I’m part of the 42% of Millennials that have student loan debt. The thought of being responsible for a $2,500 a month student loan payment makes me want to pay off my debt as soon as humanly possible. Real adults, however, keep telling me that I should save for retirement.

Save for retirement!?! Don’t I need to get to zero before I start saving for retirement? This is my life:

I think there are millions of Millennials in the same situation I’m in; you want to pay off your student loans quickly but you also believe you should save for retirement.

Lucky for you, I’ve done the research and the math for us. Get through the next few paragraphs and you’ll know if it’s smart to save for retirement while you pay off those student loans.

You Have Three Options:
  1. Pay off your student loans quickly and save for retirement later.
  2. Start saving for retirement today and pay the minimum on your student loans
  3. Try to do both. Save for retirement and contribute more than the minimum to your student loans.

The correct choice comes down to your interest rate. Bear with me because I’m going to ask you to look up your interest rate. All we need to know is whether it’s above or below 7%. That’s it.

Option #1 Pay off Your Student Loans Quickly And Save For Retirement Later.

Many of us rationalized the concept of going into student loan debt by convincing ourselves that we would pay off our debt in 3-5 years. I certainly did this. It turns out, however, that paying off student loans quickly at the expense of saving for retirement isn’t the best choice for most of us.

There are, however, a group of Millennials who should pay off high interest student loans before making monthly contributions to their retirement.

The important number is 7%. I alluded to this number earlier. If you have student loans that carry an interest rate higher than 7%, you should consider paying off those student loans before you contribute anything to retirement.


Nearly every retirement account places your money into an index fund. Index fund is a fancy term for a collection of different stocks in the stock market. When your retirement is placed in an index fund, that money will grow with the stock market. How fast does the stock market grow? it grows on average 7% each year adjusting for inflation.

Example: Let’s say you went to graduate school and some of your graduate plus loans have interest rates of 7.9%. You should pay off these loans prior to contributing to your retirement account. When your student loan interest rate is higher than 7%, your debt is building faster than the money in your retirement account.

Most of you will have multiple loans, each carrying a different interest rate. Therefore, you should pay off the loans that have interest rates above 7% before contributing to retirement. Once you’ve paid off your high interest student loans, you can begin to build up your retirement account as you pay off the lower interest loans.

So, option #1 is the best option for you if you have student loans with an interest rate over 7%.

Option #2: Start Saving For Retirement Today And Pay The Minimum On Your Student Loans

When your interest rates are low, say less than 5%, you should save for retirement now.

Why? Because your retirement account is growing at an interest rate of 7%. It’s growing faster than your low interest rate loans.

For instance, a Direct Subsidized Loan carries a fixed interest rate of around 3.5%. With an interest rate as low as 3.5%, any money that you can contribute to your retirement account will grow faster than the interest you’re accruing on your student loans. Additionally, when you factor in that a lot of your retirement contributions will be taxed deferred, it makes even more sense to put that extra money towards retirement.

Option #3: Try To Do Both. Save For Retirement And Contribute More Than The Minimum To Your Student Loans.

I’m going to go beyond the math here and say option #3 is a bad option for all you. Here’s why!

If you have student loans with an interest rates between 5%-7%, it’s not going to make much of a difference in the long run whether you put $300 a month on top of your minimum student loan payment or whether you put that $300 into a retirement account. The debt that you are accruing as interest on your student loans is matching the growth of your retirement account. You’re breaking even, regardless of where you contribute the extra $300 a month.

There is, however, a huge emotional weight that accompanies student loans that have an interest rate greater than 5%. The stress from the emotional weight of a payment that you are required to make each month can take a toll of your body and mind. To pay off those 5%-7% student loans a few years shorter has an intangible value. So instead of feeling torn between both tasks, set your mind on the goal of paying off those higher interest rate student loans. It’s amazing what you can tackle when you make a conscious decision.

I hope this was helpful.


Live Intentionally. Live Purposefully. The Millennial Post. 


Hi, I'm Greg - Millennial, Engineer, JD, former circus performer, and the person responsible for The Millennial Post and PatentDirection.com.


    • You’re very welcome, Kelly. Thank you for being a reader 🙂 Please consider subscribing or sharing the post on social media. I can tell you first hand as a content publisher, we thrive on the positive reinforcement that a quick social media share or subscribe gives us. Additionally, I’ll be posting a few more articles with practical advice on personal finances and student loans. It’s an important topic for us millennials!

  1. Thanks! I recently wrote a post on my blog about paying off those student loans as soon as possible, even before we graduate. Student debt is such a real thing, and when you’re young you ignore retirement because it seems so far away. I agree it is important to start putting into a retirement fund as much as it is to pay for student loans. Interest rates, interest rates, interest rates, those are key!