Most people go to college to get a better job so they can have a better standard of life. The irony is that the debt used to finance their education may be crippling recent graduates’ ability to save for retirement. Older workers that have not saved enough for retirement are out of time. But according to a recent study by Boston College’s Center for Retirement Research (BC CRR), younger workers burdened with student loans may be unable to adequately save.
In 2013, 55% of workers in their 20’s had an average student loan of $31,000; student loans have grown from $20 billion in 2003 to $1.2 trillion in 2015 and account for 30% of non-mortgage debt for younger workers exceeding credit cards. The BC CRR study looks at how student loans are affected the National Retirement Risk index (NRRI) which is calculated by comparing households’ projected replacement rates – retirement income as a percentage of pre-retirement income – with target replacement rates that would allow them to maintain their standard of living.
The BC CRR study:
- Briefly describes the nuts and bolts of the NRRI.
- Explores the growth in student debt and the paths through which it can affect retirement security.
- Looks at the relationship between having student debt and retirement risk status.
- Estimates the impact on the NRRI of assuming that all of today’s working households started out with the same level of loans as recent college students.
The results show that such an increase in student debt would raise the share of households at risk in retirement by 4.6 percentage points. The conclusion is that the growth of student debt will add to an already alarmingly high rate of households that are not on track for retirement.
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