Generation Y wants to know: Why does college cost so much?
The typical millennial college graduate has a student loan bill of $23,300 tucked in with his diploma, and a median starting salary of $45,327, according to new research by NerdWallet. Millennials, also known as Generation Y, are the generation born between the early 1980s and the early 2000s.
The study says most won’t see retirement until age 73, 12 years later than the current average retirement age, which, surprisingly, is 61. It was based on data from a variety of sources, including the Bureau of Labor Statistics and the Pew Research Center.
Are things really that dire? According to the Federal Reserve Bank of New York, less than 45 percent of 25-year-olds had student loan debt in 2012. Of those who did, 40 percent owed $1,000 to $10,000, and another 30 percent owed between $10,000 and $25,000.
But, here’s what else the NerdWallet study had to say:
- The average millennial will be 33 years old when he pays off his loans, and have only $2,466 saved for retirement by then. He would have had more than $30,000 if he had graduated with no debt.
- Because of the lost compound interest on that money, the average millennial will miss out on a total of $115,096, “nearly 28 percent of total retirement savings.”
- The NerdWallet study assumes Social Security benefits of $11,070 per year starting at age 67. “A substantial reduction in benefits or the disappearance of the program altogether would significantly alter the retirement equation,” it says.
- The NerdWallet study assumes “employer contributions make up roughly 50 percent of the retirement equation for millennials.” An above-average yearly matching contribution of $4,420 to a 401(k) can reduce the retirement age by up to three years.
- The NerdWallet study assumes a 6 percent personal savings rate, but bumping that up to 10 percent could knock four years off the retirement age.
The U.S. Department of Education has a new study looking at average monthly student loan payments a year after graduation. It found that in 2009, 31 percent of borrowers spent 13 percent of their monthly income on student loan payments. It also found:
- The average salary for the 2000 graduate was $39,300 (in 2009 dollars). For the 2008 grad, it was $34,400 (also in 2009 dollars).
- Only 18 percent of borrowers in 2001 had debt burdens greater than 12 percent. In 2009, 31 percent of borrowers did.
- In 2001, 18 percent of graduates lived with family one year after finishing school. In 2009, 27 percent did.
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