Saving Early, a Student Loan Debt Challenge

When you ask recent college graduates to name an obstacle that keeps them from saving for retirement, you’ll likely hear a couple of common answers: “Retirement seems so far away,” and “I am loaded down with student loans.”

Data from the Federal Reserve Bank of New York shows student loan balances have eclipsed both auto loans and credit cards, making student loan debt the largest form of consumer debt outside of mortgages.1  In part because of a staggering increase in tuition rates, student debt levels have reached a new high – rising to $956 billion.

Even more troubling is the fact that as student debt piles up, wage growth for college grads hasn’t kept pace. In fact, the average earnings for full-time workers ages 25-34 with Bachelor’s degrees have dropped 14.7 percent since 2000.3

So how do we convince young people to save more for retirement?

Aside from the larger issue of addressing rising tuition costs, one way is to demonstrate to people in their 20s they have a huge ally on their side – time.

Let’s say you put in $1,000 into a savings account each year from age 20 through age 30 (11 years) and then never put in another dime. Assuming the account earns 7 percent annually, when you retire at age 65 you’ll have $168,514 in the account. Now, if a friend doesn’t start until age 30, but saves the same amount annually for 35 years straight. Despite putting in three times as much money, your friend’s account grows to only $147,913. 4

If a recent college grad is lucky enough to work for a company that offers a 401(k) plan with a company match, it’s important he or she understand how important it is to take advantage of that match. If someone is making $50,000, a match of 50 cents on the dollar up to 6% of salary is worth approximately $1,500 a year. That’s “free money” that can’t be ignored.

The best advice from financial experts? Start the “savings conversation” with young people early so they get in the habit of saving. That might help them understand how important it is to do their very best to save for retirement while paying off those loans.

  1 Source:
  2 Source:
  3 Source: College Board, U.S. Department of Education, Census Bureau and Citi Research.
  4 Source: U.S. Department of Labor,


I like your $1000 annual savings comparison scenarios. It really illustrates why college grads should start ASAP. Nice article John V.

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