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Here's how saving for retirement can actually lower your student loan payment

Lelia Milaya | Twenty20

Financial experts say those with student loans should make room in their budgets not only to pay down their balance, but save for retirement at the same time.

Juggling both can be a real struggle, especially because the average student loan payment is $393 a month. That's almost 20% of the typical American's monthly household income after taxes. Good news: It turns out that saving for your retirement may actually reduce your monthly student loan payments if you're on a federal income-based repayment program.

Many of these federal repayment plans calculate your monthly payment based on your adjusted gross income, which is the amount you get paid after taxes. So if you lower your take-home pay, you can lower your monthly student loan payments.

Eligible repayment plans include:

  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Pay As You Earn Repayment Plan (PAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)

Contributing to a 401(k) or a retirement savings plan using pre-tax dollars is a fairly easy way to accomplish this. "Any time you can put money into your qualified retirement plan at work, it's always a good thing," Ashley Foster, a financial planner with Texas-based Nxt:Gen Financial Planning, tells CNBC Make It.

Typically you can lower your monthly student loan payment by $100 or $200, sometimes even $300, depending on your situation, Foster says. If your employer offers to match your contributions, that is even more of a bonus. "Lower student loan payments, more money in retirement and employer match to boot. Who doesn't like that?" he asks.

If you've maxed out your 401(k) for the year — the limit is $19,000 for 2019 — you can continue to lower your taxable income by contributing to a Flexible Spending Account or by claiming job-related expenses if you are self-employed or have your own business, says Adam Minsky, a lawyer who specializes in student loan law.

Lowering your reported income can also make you eligible to deduct student loan interest. The IRS allows those with qualifying student loan debt to deduct the interest you paid on the loan for your taxes that year. It can be a helpful boost, but only if your modified adjusted gross income falls below $70,000 this year.

"Unfortunately, the government makes it pretty ugly for you to deduct," Foster says. For those near the threshold though, adding some money to a retirement account could push your income into the qualifying level.

Suze Orman: Why you should never pay student loans from your 401(k)
Suze Orman: Why you should never pay student loans from your 401(k)

It's worth noting, however, that while lowering your monthly payments may help you in the short term, it also typically extends the repayment period and the amount of interest you'll pay in total. For example, if you prologue the term on a 6.8% loan, it may cut the monthly payment by as much as a third. But you'll be paying almost double the interest over the life of the loan, according to student loan site Edvisors.

That's especially true if you have a high student loan balance and your monthly payment doesn't even cover your interest. If you're in that situation, lowering your monthly payments will significantly increase your total loan balance over time, making it much more difficult to pay it down.

Plus, research from TD Bank released earlier this year shows that those with student loans are more likely to put off many life milestones. Over a third of survey respondents (36%) said that because of student loan debt, they have delayed buying a home, while just over one in five say they have put off getting married (21%) and having kids (26%).

"It's better to do something about it today, rather than stick your head in the sand and hope it goes away," Foster says.

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