1-RnBrvZ8ZytSpVlrunYSlQ

What’s Worse — Your Student Loan Debt or Not Retiring Until You’re 70?

A Republican congressman wants you to trade one for the other, and it’s actually not a bad deal

Republican Virginia Congressman Thomas Garrett has a radical solution for the nation’s student-loan debt crisis: Forgive people’s student-loan debts, so long as they agree to delay when they start collecting Social Security benefits.

Specifically, Garrett wants to grant debt holders $550 in student loan forgiveness for each month they agree to raise their retirement age — with a cap of $40,150 in forgiveness, which adds up to a six-year delay in retirement age.

Formally known as the Student Security Act of 2017, Garrett introduced the bill last April (hence the confusing 2017 designation), and it’s been languishing in legislative, bureaucratic hell ever since.

Which is a shame, because, to hear the bill’s proponents explain it, the legislation is a potential cure-all for our economic troubles. Student-loan debt recently eclipsed $1.4 trillion, a new all-time high, and is a significant drag on our economy — to the point that some economists now believe that forgiving it would be an enormous boon to the economy. (Other economists, however, say that idea is batshit insane, as it would tank the economy even further.) Meanwhile, the Social Security Administration is projected to rack up a $2.8 trillion (with a “T”!) deficit over the next 16 years, by some estimates.

The Student Security Act would ostensibly help solve for both these problems, simultaneously alleviating former students of their debt burden and saving the Social Security Administration $725 billion over 75 years.

That, of course, is great from a high-level, macroeconomic standpoint. But does it make financial sense for you, the Average Student-Loan Debt-Haver?

The main problem is that it’s hard to say what the average student-loan debt is for a recent college graduate, as amounts vary wildly. A quarter of recent graduates leave school with a manageable $7,000 or less in student-loan debt, while another 25 percent owe at least six times that amount: $43,000. (This makes Garrett’s bill even more appealing, as it would cover a large number of debt holders.)

But since the median student-loan debt for 2016 college graduates is $17,000, according to the Pew Research Center, we’ll use that.

One of the major appeals of the Student Security Act is that, by lifting a person’s debt load, it allows citizens to start contributing to their retirement savings accounts earlier. And the earlier a person starts saving, the more they get to take advantage of compound interest.

Supposing it’s a 10-year student loan for $17,000, and at a 5-percent interest rate, the person will be making monthly payments of $180.31 over that 10-year span — or a total of $21,637.37 when accounting for interest.

However, if that person were allowed to put that money toward retirement instead, their financial situation flips — suddenly they’re rolling in it. Say they put $180.31 into a 401(k) account each month, and supposing a modest 5-percent annual rate of return, they’ll have $27,899 after 10 years. And if that person starts doing that at age 25, and does it every month for 40 years, they’ll have more than a quarter of a million dollars ($267,942) by retirement at age 65. All from putting away less than $200 each month. That’s also not accounting for the fact that a person would ostensibly put more toward retirement as they progressed through their career and their income increased.

The only catch is that that same person won’t be able to collect Social Security until a few years later. The Social Security retirement age is 67 years old for people born after 1959. And if our hypothetical person above avails themself of the Student Security Act, they’ll delay their retirement by 31 months, or two years and seven months. So they won’t be able to collect Social Security until they’re near 70.

Essentially, the Student Security Act asks people to make a future sacrifice for an immediate benefit. This seems like a bit of a Faustian bargain, as people have a nasty habit of overestimating how good their financial situations will be in the future, and not saving enough as a result.

But for a debt-laden millennial who doesn’t expect to retire until 75 years old anyway, it’s a pretty good deal.