Save Now, or Pay Later

September 18, 2018

If you’re new to the postgrad workforce—or even if you’re newish to it—chances are you’re staring down the barrel of some pretty significant student loan debt. The cost of attending college in the U.S. has risen so much that our total student loan debt is five times what it was in 2004. The result is today’s young professionals having to choose between cutting back now, or cutting back later; and when they choose the latter, their retirement savings suffer.

This situation is illuminated in a study produced by the Center for Retirement Research at Boston College titled, “How does student debt affect early-career retirement saving?” The paper, which was published in late 2016 and updated earlier this year, focuses on the retirement savings status of American workers as of age 30.

As the study details, 47% of graduates in 1993 had student loans with an average burden of about $10,000 (adjusted for inflation). A mere 25 years later, soaring higher education costs have seen those numbers shoot up to 70% of graduates with student debts that average about $30,000. In fact, the rise has been so sharp that the authors of the study weren’t able to examine the relationship between increased student debt and retirement savings until now; unfortunately, reliable data on the topic only recently became available.

The findings of the report are fairly predictable in spots. For example, graduates with loans have notably lower retirement savings by age 30 than those without loans (though the size of the loans doesn’t seem to matter much). However, the potential remedies for this aren’t as clear cut as simply reducing (or eliminating) student debt—which is currently a popular, if untenable, campaign trail promise among some progressive candidates.

The study found that recent graduates tend to reduce their savings regardless of how big their loan debt is, which suggests that policy efforts to limit college costs or tie loan balances to professional incomes won’t have much of an effect on these folks’ retirement savings.

Instead, the authors write, “policymakers may find it more effective to focus on helping graduates with manageable balances determine what they can afford to save.” This means that merely showing young people the retirement savings options they have—something that’s a routine feature of a job with any PERA employer—can have a dramatic effect on their rate of saving and retirement planning. It can also have ancillary results on areas like credit card debt and homeownership rates. The upshot: Getting all of these things in check while you’re still young remains the best way to ensure a steady income stream once the later years have arrived.

To read the entire study, click here