Student Loans Delay Retirement Saving – But College Degrees Still Worthwhile

According to Fidelity data, the dollar-weighted average 401(k) balance for the youngest cohort of investors – those just starting their careers – is $11,600. That’s not bad

But the median 20-something has a 401(k) account balance much lower than that – just $4,000. And that’s only of the subset of 20-somethings that has a 401(k) balance at all. Many people in this age group have no access to an employer-sponsored retirement plan at all. Or if they do, many of them haven’t started contributing yet.

The average student loan balance for recent graduates is well over $30,000, while the average monthly student loan payment among those not still in deferment is $393 (median $222), according to data from the Federal Reserve.

So if you’re in your 20s or 30s, and you’ve been unable to contribute much to your employer retirement plan, you aren’t alone. A study from MagnifyMoney found that Millennials ages 35 and younger with student loans had less than half the money in the bank as their peers who didn’t have loans. 

Furthermore, Millennials ages 35 and younger with student loans have nearly $19,000 dollars less stashed away in retirement accounts than their peers who don’t have student loan debts. 

Don’t be discouraged

If you’re in this boat, take heart. Many studies that look at the consequences of student loan debt among Millennials don’t account for your largest asset. That’s the long-term value of your career as a college-educated worker. Though it takes some time to get off the ground, those with college degrees still out-earn those without college degrees – and by a large margin. 

The median weekly earnings of full-time workers with a bachelor’s degree were $1,189, at the close of 2016. This is significantly more than the median weekly earnings of a high school graduate with no college, $718. Those with some college or an associate’s degree earned a little more: $799 per week, on average. 

Bachelors’ degree holders earn an average of $471 more than workers with a high school diploma every week. They also earn $390 per week more than workers with some college or an associate’s degree. That more than makes up for the median $222 student loan payment. Furthermore, that student loan payment eventually goes away. The earnings advantage doesn’t.

The average baccalaureate earns $24,492 per year more than the average worker with just a high school diploma. He or she also earns $20,280 more than the average worker with just some college or an associate’s degree. 

Looked at another way, it’s clear that when it comes to colleges, a bachelor’s degree is a much better value than an associate’s degree. 83%of the additional earning power of college comes in the last two years. That’s the difference between an associate’s degree and a bachelor’s. 

So if you’re midway through your college career and struggling – keep going. It pays more to complete college than it does to get half-way through. 

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