It's no surprise college grads make more money than those with just a high school diploma. To get specific, a college degree can boost your lifetime earning potential by $1 million.
But what often gets lost in this 101 discussion about college degrees and earning potential is the fact there's a wealth gap—and it's a huge one—between those who have student loans and those who don't. In fact, millennials saddled with student loans have an average 75 percent less wealth than those who don't, according to a new analysis from MoneyMagnify, a LendingTree-affiliated site that helps consumers compare financial products.
For the study, the team at MoneyMagnify compared data from the Federal Reserve's Survey of Consumer Finances. Specifically, they looked at how household finances in 2016 compared for those under age 35 with and without student loan debt.
They found that Millennial households with student debt have an average net worth of $29,087, compared with $114,376 for student loan-free households. That shakes out to be a whopping $85,289 difference.
The wealth gap between those with student loan debt and those without is widening, too. In 1989, under-35 households with student loan debt had, on average, just 13 percent less in average net worth than their peers who weren't paying back college loans.
Today's significant wealth gap, though, means those with student loan payments have less in their checking and savings accounts, as well as less in their retirement savings. If that wasn't enough, they also have higher mortgages on lower-value homes, according to MoneyMagnify's analysis.
So, what can you do to grow wealth if you're stuck with student loans? Finance experts share some of their best tips.
Keep your core expenses low
Spending advice often falsely places emphasis on eliminating small, discretionary purchases, says Alison Norris, certified financial planner and advice strategist at SoFi, a personal finance company. Ditch your daily coffee! Bring shopping lists to the grocery store! Sound familiar? "These little line items don't comprise the majority of expenses for Americans," she says. "It's our shelter, transportation, and debt costs that dominate where our dollars go." So, if you truly want to change your financial reality for the better, challenging where you live, what type of car you drive, and seeing if you can refinance your student loans are better options, she says. "Those who are able to keep these core expenses low have the flexibility to both build wealth and treat themselves to small purchases," Norris says.
Take advantage of workplace contributions
Automatically have your workplace contribute to your workplace plan if you have one available, says Russell D. Rivera, president of Voice Wealth Management. "Also, if they have a Roth or after-tax option, consider using that as well. You might have additional flexibility with the funds later on down the line," he says.
Avoid credit card debt
While carrying student loans can feel like a big burden, the interest rate on these loans are much lower than credit cards, savings expert Andrea Woroch points out. If you spend all your money toward paying down student loans, and then rely on high-interest credit cards to pay for anything from emergencies to vacations, you could be putting yourself in a worse financial position, she points out. This is a common scenario: According to a recent survey from PurePoint Financial, 34 percent of consumers say it's easier to put large purchases on a credit card and deal with the cost later than to plan or save for the purchase.
Set up automatic transfers
Create a goal-oriented savings account, and set up automatic transfers that come from your checking account. "This way you set it and forget it, knowing that you are working towards building a safety net or reaching that goal," Woroch says. She also says you should be earning at least one percent on your savings—so that may mean switching banks to get the best rates.
Increase your earnings and reduce your costs
Instead of going full on slasher-mode to your budget, consider taking a measured approach when it comes to reducing costs and increasing earnings. "Cutting the cable cord is a good option," suggests Lou Haverty, chartered financial analyst, of Financial Analyst Insider. Longer-term, he suggests researching your industry to find professional designations or licenses that will help you earn more income in the future. The key is to take your savings, either from more income or lower expenses (or a combo of both) and invest in a low-cost stock mutual fund, he says.
Want to build your net worth? Here are a few more tips on how to do just that.