Happy graduation! Advisors offer tips for clients staring at both retirement and student loans

College graduates will be waving goodbye to classmates and campuses at graduation ceremonies and parties over the next few weeks.

Too bad a significant number won’t also be saying farewell to their student loans. In fact, they will be weighed down by that debt all the way to retirement age if not managed properly, advisors say.  

According to data from the Federal Student Aid office released late last year, about 3.1 million federal student loan borrowers were 62 years or older, holding roughly $136.9 billion in outstanding federal student loan debt, or about 8% of the $1.7 trillion total. Furthermore, the average balance for this group is about $44,161, the third-highest loan balance compared with other age groups.

Aaron Leak, founder and wealth manager at ECL Private Wealth Management, says student debt has become a growing retirement planning challenge because many Americans are borrowing later in life for graduate school or helping children through Parent PLUS loans, while rising tuition costs and compounding interest have kept balances elevated for decades. As a result, for pre-retirees and retirees, student loan payments now compete directly with retirement savings, healthcare expenses, housing costs, and lifestyle goals, creating additional pressure on fixed-income planning.

To improve the troubling situation, advisors are helping clients by incorporating student debt into comprehensive retirement cash-flow analysis, often using repayment restructuring, refinancing opportunities, income-driven repayment plans, and in some cases securities-based lending strategies to improve short-term cash flow without forcing large taxable liquidations of investment assets.

“When appropriate and fully understood, securities-based lending strategies may help clients consolidate higher-interest obligations or create liquidity flexibility, but advisors must carefully evaluate market risk, collateral requirements, interest costs, and the client’s overall retirement sustainability before recommending them,” Leak said.

Elsewhere, Riki Cooke, financial planner at Abundo Wealth, points out that people approaching or in retirement with large student loan balances often had expensive education bills and have made low payments against their loans for many years.

“As always with student loans, there are two paths forward: repayment or forgiveness. If you've been on a realistic long-term forgiveness plan, it may be best to simply continue working that plan,” Cooke said.

Meanwhile, Michael Corr, senior wealth strategist with Janney Montgomery Scott, agrees that student loan repayment obligations often cause delays in contributing to retirement savings accounts or prevent borrowers from maximizing their contributions. To help address the impact of student loans, he believes advisors need to prepare comprehensive financial plans for their clients that evaluate cash flow, tax planning, and liability management.

“By modeling multiple retirement scenarios, advisors can determine a realistic retirement date that balances loan repayment with retirement savings targets and future spending goals. In some cases, adjustments to discretionary spending or delaying retirement may be necessary,” Corr said.

ADJUSTING THE RETIREMENT TIMELINE

Advisors say the most effective planning strategies for borrowers is to balance debt management with preserving long-term retirement security, often combining adjusted retirement timelines, disciplined budgeting, and strategic asset management rather than aggressively depleting retirement savings to eliminate debt immediately.

“If you need to repay the loans, then the best thing to do is face them head-on with a clear budget and target repayment date just like any other debt. If you're paying off multiple debts, place them wherever they fall in your ‘snowball or avalanche’ list,” says Cooke, adding that many people treat student loans as special, but they “really aren't if you're repaying them.”

Emphasized Cooke: “In my experience, taking action and having a plan provides significant relief. Sitting and waiting or hoping to be saved by a new program causes anxiety.”

Finally, Janney Montgomery Scott’s Corr believes there shouldn’t be an exclusive focus on debt repayment. In his opinion, simultaneously implementing an approach to retirement savings that prioritizes tax-advantaged savings accounts, takes advantage of employer matching contributions, and gradually increases savings over time is equally important.

“Delaying retirement by even a couple of years provides additional time for loan repayment, retirement contributions, and portfolio growth,” Corr said.