The soaring costs of college education and the weight of student debt have become an increasingly heavy burden for Americans. While the typical student loan is designed for a 10-year payoff, studies demonstrate that, in reality, it often takes twice as long to clear this debt – unless you cut back on booze, according to new Credello research.
Credello analyzed what would happen if you redirected the money typically spent on alcohol towards investments in the S&P 500. The results are surprising: drinking less and investing that money instead could help you pay back your student loans back in six years instead of 20. Here’s what you need to know.
Millennials, in particular, have been known to spend a substantial amount on alcohol, averaging about $300 per month, as per a survey conducted by The Harris Poll for TD Ameritrade.
Credello delved into the implications of diverting this money into monthly investments in the S&P 500 over the course of 20 years, and the results are astonishing. For the average millennial, it would take just six years to pay off their student loan debt.
By year six, the $300/month deposits accumulate to $4,137.12 in savings. But when that same $300/month is invested in the S&P 500, the impact of compound interest on your returns could potentially translate into an average balance of $34,540.39 in your investment account – a sum sufficient to eliminate your student loan debt.
The increasing cost of alcohol plays a significant role in these findings. Data from the U.S. Bureau of Labor Statistics reveals that the prices of alcoholic beverages have surged by a staggering 621.31% since 1952. On average, alcoholic beverages have experienced an inflation rate of 2.82% per year. This means that a bottle or a drink order costing $10 in 1952 would set you back $72.13 in 2023.
You don’t need to be a heavy drinker to feel the financial impact of alcohol consumption. A bottle of wine with your meal and a few happy hour outings add up.
College tuition costs have been on a relentless climb over the past three decades as well. Tuition at public four-year colleges has surged from $4,160 to $10,740, and at private nonprofit institutions, it has catapulted from $19,360 to $38,070 (adjusted for inflation), according to Forbes.
Federal Reserve data reveals that the total student loan debt now surpasses a staggering $1.77 trillion, marking a 66% increase over the past ten years. As for the average student loan debt, the Education Data Initiative reports that it currently stands at $37,338.
Even 20 years after starting school, half of the borrowers still owe $20,000 in student loan balances. The average monthly student loan payment is $503, and up to 42% of the average borrower’s total cost of repayment consists of interest. In other words, the financial toll of student loans can’t be underestimated.
The emotional strain of having limited disposable income due to student debt repayments adds another layer of stress to the equation, especially if you’re barely making a dent in the balance owed.
Given the dire statistics surrounding student debt and its financial and emotional implications, reducing alcohol consumption or going completely sober becomes an enticing prospect. Just consider the impact of saving $300 a month by cutting back on alcohol and channeling those funds into the S&P 500 over the years.