Is Student Debt Good Debt?

by Martin

Is it worth applying for student loans? Should you bother with borrowing money for school?

It’s not a secret that many students are in debt when they graduate from college. It’s also common knowledge that student debt is never only a couple of hundred bucks. I actually wanted to share something with you guys first.

Check out this interesting stat from the College Board:

By the time the typical graduate walks across the stage to pick up his diploma, he owes $22,700.

This stat is really scary. At first glance at least. You can then turn around and argue that the over 20 grand in debt could be used as leverage to earn you a job earning money you never could’ve imagined. There’s more to the story. The topic of paying for college is an interesting one.

Where am I going with this? I wanted to jump into the thought of student debt being considered “good debt.”

Let’s look at if student debt is good debt… I’ve narrowed this discussion down to two key questions.

Will you use your degree?

This is a rather ambiguous question. Some of us will use our degrees for a few years until we find a much more fulfilling position in an unrelated field. Some of us will attempt to follow our passions to start an online business. Others are going to college for the experience and networking aspect. Many of us are forced to attend college by our parents. For how long and how do you think you’ll use your degree?

It’s difficult to classify student debt as good if you’re not even sure if you’ll find a job after college. You’ll only trap yourself in a job you hate because you’re forced to pay off your massive amount of student debt.

Do you need to finance through debt?

Realistically most of us will not even attempt to pay for college any other way than through debt. This is a major problem. There’s so much “free money” available to us through scholarships, bursaries, grants, etc. Then of course you can work to pay for college as you go along. There are two points you need to consider as you debate over financing your college education through debt:

  1. Work load. I know people in science programs that don’t even have enough time for a morning coffee. Then there’s people in lighter programs that have all of the time in the world. If you have time then why not get out there and make some money? You may not pay off all of your school bills but you’ll certainly improve your financial situation.
  2. Ability to pay back debt. If you find yourself with a guaranteed job after college or if you’re certain that your field of work will pay you well, then using debt as leverage can be a great investment here. If you plan on earning below $50K for many years post-college, then you really can’t consider student debt to be any good at all.

Is student debt really good debt?

Should you be applying for student loans?

Student debt is good debt if you absolutely NEED to use debt to pursue your degree. I’m not talking about those that don’t feel like working or want to finance their lifestyle. I’m talking about those that have saved up money, earn decent money, are limited on time, and still want to earn further credentials. This is when I feel that student debt is good debt, not when you’re too lazy to apply for scholarships or work for your money to pay for college.

Do you think that student debt is “good debt?”

Check out my piece from last week on if good debt exists?

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{ 3 comments… read them below or add one }

1 Red

Like you said, if it’s necessary to take on student loan debt to obtain a college degree that will enable you to pursue the career you’re most interested in and/or earn more money, you should definitely do that. BUT I’m still hesitant to call it “good debt.” Like I said on Twitter, it’s better debt than credit cards or car title loans, but that doesn’t make it good. It’s kind of like calling Stalin a “good” dictator. Well, he’s not a good dictator at all, he just wasn’t as bad as Hitler. (Awful, awful, comparing these guys to debt, I know!)

So it’s not BAD to have student loans, but all debt is debt. Some is just less bad than others. :)

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2 Wiseguy

Another positive aspect of debt is diversifying and deepening your credit history. If you apply for a car loan or mortgage without any prior debt to your name, your history will appear limited in scope. This tip isn’t specific to student loans, but student loans are often the first installment debt a person will have.

As a recent example, I have two credit cards; I’ve had one card for four years and the other for three. My history is perfect (no late payments, no exceeding my limits, nothing). My credit score is very good – around 770. I worked very hard to graduate one year early, and in doing so I very narrowly managed to avoid incurring student loans. When I applied for an auto loan this week, the banker told me that was “kind of a double-edged sword” since I didn’t have any loan history, and he couldn’t say for certain if I would be granted the loan despite my otherwise great credit history. I want this car loan to build loan history so that I hopefully won’t have this same problem in a few years when I want to buy a house.

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3 Bret @ Hope to Prosper

I think working while in college is a great strategy. I worked my way through college and graduated without any student loans. But, it’s a little harder to do that now, because college costs so much more than it used to.

It’s a fact that students who work while in college get slightly better grades and graduate with less student debt. But, what is even more important is graduating with work experience. I think graduates with work history have a big hiring advantage over graduates who have never held a job.

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