EBRI Issue Brief

How 401(k) Plan Participants Use Loans Over Time: An Analysis of Loan Activity of Consistent 401(k) Plan Participants, 2016–2020

Sep 12, 2023 24  pages


Each year, EBRI and ICI publish statistics on 401(k) plan participants’ loan activity drawn from the annual EBRI/ICI 401(k) database cross sections, which provide a snapshot of loan usage at the year-end. Whereas 401(k) plan loans tend to be a multiyear process—with some individuals taking out loans in any given year and others paying them down or paying them off—meaningful analysis of a participant’s lifecycle of 401(k) plan loan usage must examine loans for a sample of consistent participants over time. This report analyzes 401(k) plan loan usage for a sample of 2.2 million consistent loan-eligible 401(k) plan participants—participants who maintained accounts in each year between 2016 and 2020 and were in plans offering loans.

  • While the likelihood of having a plan loan in any given year is relatively low, more participants had loans at some point between year-end 2016 and year-end 2020. Overall, 29 percent of 401(k) participants in the sample had an outstanding loan at some point in the five years analyzed, compared with 18 percent at year-end 2016.
  • Over the five years analyzed, the increase in loan usage was largest for younger participants or those with lower job tenure as they aged into longer tenure and higher account balances available for loans. For example, among participants in their 20s at year-end 2016, 7 percent had outstanding loans at year-end 2016. However, when the five years analyzed are considered altogether, 21 percent of participants in their 20s had taken out plan loans.
  • New loans tended to be modest relative to account balances and decreased over time. The median new loan balance at year-end 2017 for participants with loans who did not have a loan balance at year-end 2016 was 16 percent of the total account balance. By 2020, the average loan balance for those participants had fallen to 4 percent of the total account balance. The change in the loan share reflects both changes in loan amounts (through payments or new/additional loans) as well as changes in the total account balance (through loan interest payments, contributions, withdrawals, and asset appreciation/depreciation).
  • Among 401(k) plan participants with loans, those with larger account balances tended to take smaller loans as a share of their total account balance. At year-end 2017, 64 percent of participants with new loans and total account balances greater than $100,000 took out 10 percent or less of their account balance as a loan compared with 16 percent of those with balances of $10,000 or less. Similarly, those with smaller accounts tended to be more likely to take a larger share: 57 percent of those with new loans and balances of $10,000 or less at year-end 2017 took out more than 20 percent of their balance, compared with 14 percent of those with balances of $100,000 or more.
  • Participants who were observed taking multiple loans between year-end 2017 and year-end 2020 tended to take smaller loans. Among participants with new loans at year-end 2017 who were observed taking an additional loan between year-end 2018 and year-end 2020, about three-fifths had an initial loan of $2,500 or less. Among participants with new loans at year-end 2017 who were not observed taking an additional loan, one-fifth had an initial loan of $2,500 or less.