College & Young Adult Life

Decisions in your twenties with twenty-year consequences

The big money decisions in college and early adulthood — how much to borrow, what major to choose financially, whether to work while in school — have outsized effects because of compounding. A few hundred dollars saved or not borrowed in your twenties is worth thousands by middle age. The same goes in reverse: a few thousand in high-interest debt taken on early can shape budgets for a decade.

Most personal finance advice for this stage focuses on credit scores and budgeting apps. Those matter, but the highest-leverage decisions are about debt and time. Federal student loans before private loans, smaller school plus less debt usually beats prestige plus larger debt for most career paths, and any retirement contributions started before age 25 will outperform much larger contributions started at 35.

Student loans: federal first, private as a last resort

Federal student loans come with income-driven repayment options, forgiveness programs (Public Service Loan Forgiveness for qualifying jobs), and discharge provisions for death and disability. Private student loans have none of those. Whatever the headline interest rate, federal loans are almost always the better choice when both are available.

Subsidized federal loans don't accrue interest while you're in school; unsubsidized loans do. If you're choosing between the two within a federal aid package, the subsidized portion is materially better. Take the maximum subsidized amount, and only the unsubsidized portion you actually need.

Building credit from zero

A credit score requires credit activity to exist. The fastest way to start: a secured credit card (you deposit, say, $300, and that's your initial credit limit). Use it for one recurring small bill, pay the statement in full each month, and the score takes shape within six months.

Becoming an authorized user on a parent's long-established account is another shortcut — you inherit some of the account's history. This only works if the primary cardholder has a clean payment record.

Why time matters more than amount

Compound growth is unintuitive. $200 a month invested from age 22 to 32 (then left alone with no further contributions) typically ends up worth more at retirement than $200 a month invested from age 32 to 62. The early decade matters more than three later decades combined.

This is why even small retirement contributions in your twenties are worth making, even if it feels premature. Capture any employer match. Open a Roth IRA and contribute what you can afford. The dollars matter less than starting the timer.