With Student Debt, Even Paying It Off Isn’t the End

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About two-thirds of the 20 million people who attend college every year borrow money to do so. We’ve heard a lot about how growing educational debt loads — the average student borrower now graduates owing $26,600 — can be a detriment to someone just starting out in life, and to the health of the broader American economy. Student debt loads are crowding out other things that young people historically spend money on, forcing them to delay marriage, home ownership, auto and other big-ticket purchases, investments in start-up businesses, and retirement savings.

But as it turns out, the negative effects of borrowing for college haunt borrowers long after their debts are paid off. 

The question of whether or not a college degree is a worthwhile investment is one that comes up often as higher education costs continue to rise. All other things being equal, the answer is yes: Researchers at Georgetown University found that over a lifetime, people who earn four-year college degrees earn an average of roughly $1 million more than those with only a high-school education.

But a new study from nonprofit group Demos uncovers a troubling phenomenon: All other things being equal, people who borrow money to go to college build about $208,000 less in wealth over the course of a lifetime than those who don’t — and this assumes the borrowers take advantage of the government’s often-overlooked income-based repayment plan.

(MORE: Congress Nears Deal on Student Loan Rates. Spoiler Alert: They’re Going Up)

The Demos report assumes a two-headed household, collectively carrying $53,200 in student loan debt. Servicing that debt chews up 7.5% of their income during the life of the loan, siphoning funds from savings and investment opportunities. These borrowers are more limited in their ability to build home equity and retirement savings as quickly as their debt-free counterparts.

Over time, the gap between the two widens. “Nearly two-thirds of this loss ($134,000) comes from the lower retirement savings of the indebted household, while more than one-third ($70,000) comes from lower accumulated home equity,” the group says.

“The household with student debt was forced to save significantly less for retirement early in their working lives while paying back their student loans.” Since they can’t start building their nest egg sooner, these households lose out on years worth of accumulated interest.

Since college grads out-earn people without higher education by nearly a million dollars and a lower degree of educational attainment can mean paying more for things like car insurance, college is still “worth it” from a financial perspective, but it’s sobering to realize the ripple effect of student loan debt lasts a lifetime.

(MORE: Student Loan Debt Crisis: How’d We Get Here and What Happens Next?)