A college degree can be the key to greater career opportunities, higher earnings and, hopefully, enough savings to support a comfortable retirement — at least in theory.
New research on how student loans and choice of college major might affect the retirement prospects of millennial couples finds that the reality is less than encouraging for the average borrower, to say the least.
It’s well known that millennials, who were born between 1981 and 1996, inherited a unique and challenging set of economic circumstances. They started college right about the time when the cost of a four-year degree started swelling at an unsustainable pace, requiring that they rely more on loans to fund their degrees. Then, many millennials who graduated with education debt during the Great Recession saw their careers and earnings stymied amid the crippled job market.
And lest we forget that lagging wage growth and skyrocketing costs on everyday expenses like housing have plagued Americans in general over the last two decades. Long story short, younger college grads have had a lot working against them when it comes to having enough left over in their budget to save money, including for retirement.
A recent working paper, published in December, estimates that a millennial household would need a minimum of $290,000 to retire comfortably by age 65. With just $20,000 in student debt, the odds that a coupled millennial household will reach that target are about 50/50.
As for the 45 college majors analyzed, the researchers determined that 60% of them won’t get to that minimum nest egg goal in time, based on typical salaries in those fields. And that’s even without student loan debt. Liberal arts and visual and performing arts graduates were particularly at risk, with none of those majors projected to accumulate sufficient retirement savings.
To be clear: There are a lot of factors beyond a graduate’s major that can influence how much they earn and how much they’re able to save for their older years, as the authors acknowledge. And according to the Pew Research Center, college graduates earn about $1 million more than workers with only a high school diploma over the span of their careers.
“This isn’t to say [non-STEM and business] degrees aren’t worth it at all. Degrees open doors,” Frank Smith, one of the study’s authors and a clinical professor at Colorado State University, says. “It’s more like the Ghost of Christmas Future showing you what it could be, but doesn’t have to be.”
You can find out more about the study’s findings and tips on how student loan borrowers can avoid becoming a statistic by reading my latest story.
— Mary Ellen Cagnassola, Money reporter
