by Michael Pacitti
It’s no secret, retirement is a long way away for all recent college graduates. It’s fair to say that they’re worrying about finding a job now, not relaxing on a beach somewhere 40 years down the line. Let’s face it, retirement isn’t exactly a top priority for this demographic. But what if I told you that your retirement wouldn’t happen for an additional ten years?
An alarming prediction from the financial website NerdWallet concludes that the average college student with loan debt of $23,000 on a 10-year repayment plan could translate up to $115,000 less for their retirement fund. I know what you’re asking- who in their right mind would pay in excess of $90,000 of interest on a $23,000 loan? Rest assured the answer (at least in this scenario) is still no one in their right mind. However, there is an economic factor called opportunity cost that is key to the prediction NerdWallet makes. Opportunity cost is the amount of money one could potentially earn if a certain sum was invested with compounding interest rate over a certain period of time. In other words, if the money spent on paying back student loans was instead invested, it would amount to a sum over $130,000 after 33 years. However, if not invested, this ends up costing students ten additional years’ worth of work before having the savings to retire.
Although it is not an issue for the near future, the ability to retire and live comfortably is a goal almost all people strive for. With the rising cost of student loans, this goal drifts farther and farther away from recent grads until eventually staying out of their reach.