The monthly average student-loan payment in the US is $393. Here’s how much money you’d save for retirement if you could invest it instead.

The cost of the average monthly student-loan payment could go a long way if you were able to invest it for retirement.

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The cost of the average monthly student-loan payment could go a long way if you were able to invest it for retirement.
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Boston Globe/Getty Images

Student-loan debt can eat away at your savings.

The average student-loan debt total per person in the US is $31,172, according to Credit.com, and the average monthly student-loan payment for graduates is $393. That’s a decent chunk of money that could otherwise be invested for short-term goals, like buying a house, or long-term goals, such as retirement.

Can you imagine what that $393 would look like if you didn’t have student-loan debt and could instead invest it in a retirement account every month?

Business Insider decided to find out just how much you’d be able to save up over time.

Let’s say that you began the investing process at age 22, when most graduate college. You continue investing $393 monthly until age 32, assuming that you would otherwise pay off the student loan over a 10-year timeline, and that you could get a healthy but not unreasonable 6% annual rate of return on your investments. You then leave it untouched and accruing interest until age 65, the standard retirement age.

According to Business Insider’s calculations, you should have $466,000 saved by that time, as demonstrated in the chart below. Note that while the chart includes projections out to age 65, the ages are shown in five-year increments.

Investing $393 monthly for 10 years with a 6% annual return rate, beginning at age 22, and letting the interest accrue from age 32 to 65, should give you $466,000 in retirement savings.

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Investing $393 monthly for 10 years with a 6% annual return rate, beginning at age 22, and letting the interest accrue from age 32 to 65, should give you $466,000 in retirement savings.
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Andy Kiersz/Business Insider

A look at the math

To reach this number, we used the compound interest formula to update the monthly balance in our retirement account:

Future Value = Present Value * (1+Yield)N

Since we’re making monthly deposits of $393, we’ll also assume that our interest compounds monthly as well.

For our purposes, the present value in the formula is the previous month’s balance. The yield is the interest rate, or rate of return you get per year – as noted above, we put this at a typical return rate of 6%. Since we are updating our balance each month, we divide that yield by 12 to get a monthly rate of return. N is the number of years your money compounds. We’re also adding the $393 deposited every month to our new monthly balance.

So, our formula for each new monthly balance is:

Current month’s balance = (Previous month’s balance) * (1 + 0.06/12) + $393

For example, after 12 months of investing $393, you’d have accrued $4,848 with interest at this point. To determine how that investment would look for the 13th month, the formula would look like this:

Balance after 13 months = ($4,848) * (1 + 0.06/12) + $393

After 10 years, we stop adding $393 to the balance each month, and instead just add the monthly interest to the account. After 43 years, we end up with a total account balance at age 65 of about $466,000. Turns out, that monthly student-loan debt can go a long ways in other places.