Graduates with student loans are often caught in a Catch-22 scenario when they are faced with large amounts of debt and the need to save for retirement. The conundrum of deciding whether to tackle their student loan payments first or accumulate savings for their future is never an easy decision.

Though it's a delicate balance, consensus holds that it's possible and important to do both at once. Borrowers must pay extra attention to eliminating debt -- as interest can be expensive -- but ultimately, waiting too long to save for retirement can be expensive in its own right in the years missed of compounding interest opportunity.

Take Sara Hamilton, for instance, a lawyer at an Atlanta firm, who is prioritizing paying off her student loans with an eye on the future. Choosing to refinance the debt to lower her monthly payments has allowed her more financial flexibility.

By lowering her monthly payments and applying home equity and rental payments to her federal and private loans, she's been able to sock some money away consistently for retirement.

Why Paying Down Debt First Is an Advantage...

Graduates should try to find a balance of lowering their debt and saving money, but it's important to bear in mind that the interest being accrued from the loans is also high, said Jeff Golding, chief growth officer at IRH Capital, a Northbrook, Ill.-based financial company.

“You can’t just get rid of your student loans by filing for bankruptcy, and they aren’t going away,” he said.

The best strategy is pay a little extra in principal each month to eradicate the loans faster, said Golding, who used to be the president of Finansure, a former student loan lender. By just budgeting and changing your lifestyle slightly, graduates can eke out another extra $50 or $100 each month to lower the balance of the loans.

“Cutting out the $4 cappuccino or skipping a movie means you can easily add $60 a month to the principal balance,” he said. “I guarantee you it’s not that difficult. While it does not seem like much, it means you can save thousands of dollars in interest.”

Some believe consumers should go all in paying down debt. Before consumers start saving for their retirement, they should eliminate all of their debt except for their mortgage, said Chris Hogan, a Nashville-based financial speaker who is a part of national financial expert Dave Ramsey’s team.

“The average consumer sends 24% of their take home pay to non-mortgage debt,” he said. “Your largest wealth building tool is your income, and when it is tied up in monthly payments, it is hard to save for retirement. Find ways to cut expenses so you can eliminate your debt. It's better to make these sacrifices now than to work far into your retirement years.”

Of course college loan amounts are rising. Millennials and Gen X-ers are relying more heavily on loans to fund their educations nowadays. A 2014 analysis conducted by the Pew Research Center showed that from 1992 to 2011, college students are borrowing more money in all income groups, ranging from low to high income brackets. The standard amount of cumulative student debt for their undergraduate degree increased from $12,434 for the class of 1992-93 to $26,885 for the class of 2011-12 (figures adjusted for inflation).

The Federal Reserve estimates the average amount of undergraduate student loan debt for the class of 2014 at just over $33,000, a substantial increase from $18,600 in 2004.

Sometimes paying that daunting sum of debt down and waiting for your finances to be pristine before saving for the future can quixotic. 

Student Loan Interest Rates...And Not Waiting Too Long to Save

Indeed, waiting until everything is “perfect” to start saving for retirement means some people may never start, said J.J. Montanaro, a certified financial planner at USAA, a San Antonio, Texas-based financial institution. Federal loans typically have lower interest rates with payback terms that can allow someone to “invest for the future while still paying off the loans on schedule,” he said.

The current undergraduate direct subsidized and unsubsidized federal loan rate is 4.29%. The interest rates for private loans vary more because they are based on your credit score – Wells Fargo loans range from 5.94% APR (with a discount) to 10.51% APR (without a discount) for fixed interest rates to 3.17% APR (with a discount) to 8.60% APR (without a discount) for variable interest rates.

Depending on the individual’s income and other debt, aiming to “knock out student loans in ten years or less is a good goal,” said Montanaro.

“Putting off all of your efforts towards retirement until that debt is gone is sacrificing one of your biggest allies - time,” he said. “I like the idea of getting your foot in the retirement savings door, even if it’s in a small way.”

Benefits of Saving for Retirement in Your 20s and 30s...

Waiting too long to save for retirement has severe consequences, because you miss out on years of the money compounding interest. Consumers should tackle both of these goals simultaneously since the interest paid on student loans is tax deductible, said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.

Investing money in a 401(k) or an IRA both is a prudent move because it lowers the amount of tax you need to pay.

“If you fall in the 33% income tax bracket, a contribution of $2,000 would save you $660 and is an awfully high return on investment,” Johnson said.

Millennials and Gen X-ers should contribute enough money to a 401(k) to take advantage of the employer match and not "leave money on the table,” he said.

Commit to saving just 5% of your salary toward retirement until the loans with the highest rates are paid off and then ramp up your retirement savings to 10% to 15%, said Jake Loescher, a financial advisor with Savant Capital Management in Rockford, Ill. Allocate extra money toward your student loans if the interest rates exceed 6% to 7%.

“It’s hard to suppress the desire to pay off debt as fast as possible,” he said. “If the rate of return on your retirement portfolio can exceed the rate of interest cost on your debts, you are better off saving extra money for retirement.”

Even waiting five years after you graduate until your loans are paid off means consumers can sacrifice over $125,000 in retirement savings from allocating $300 a month compared to individuals who save money right away, Loescher said.

But Watch Those 401(k) Fees...

Since the average 401(k) match nets out to only 3.57%, according to the Bureau of Labor Statistics, it can negate the fees charged by the plan.

The underlying problems associated with 401(k)s still need to be fixed, said Grant Easterbrook, co-founder of Dream Forward Financial, a new low cost 401(k) plan based in New York.

“Look into how much you're paying in fees and how your investments have performed compared to the market,” he said. “You may be shocked to find how much of your matching money is eaten up by fees and under performance.”

Many plain vanilla 401(k) plans have fees that easily add up to 3% to 4% each year, but employees are unaware of them, because they are hidden.

Studies have shown that 70% of plan participants think their 401(k) plan is free, but the average plan cost for a smaller company is 2.5% to 3%, said Mike Kane, CEO of Hedgeable, a New York-based robo-advisor.

Investors are more familiar with the first set of fees imposed by 401(k) plans, who are “notorious for using very expensive mutual funds, often because the employer receives a credit against the fees they pay to manage the plan from including these funds," said David Twibell, president of Custom Portfolio Group in Englewood, Colo.

The fees “can eat up nearly 30% of your retirement savings over ten years, even a seemingly small annual fee such as 1.27%, which is the average U.S. mutual fund fee,” said Mitch Tuchman, managing director of Rebalance IRA in Palo Alto, Calif.

A second category of fees are those that are passed to the workers by the employer and are often hidden. The two fees can really add up with employees paying over 2% in additional management and administrative fees, which is $2,000 in unnecessary fees on a $100,000 retirement account each year, Twibell said.

Allocation of Debt Compared to Retirement...

Figuring out how much money should go toward debt and your savings is difficult since there is no exact golden ratio, said Golding. Allocate 70% of your disposable income to debt and 30% to savings, he recommends.

“I would try to get my debt paid off so it can put you in greater position later in life to save,” Golding said.

Hamilton’s goal is to pay off her loans as fast as possible, because when “you have student debt, it obsesses your thoughts.”