Is Student Debt Considered “Good” Debt?
The word “debt” tends to have a pretty negative connotation, but in reality it is a common thing to have. Most homeowners, for example, take on debt in the form of a mortgage, and in many cases, debt is required to acquire a vehicle.
But not all debt is created equal. In fact, you will often hear about the concept of “Good” debt against “bad” debt. The question is: what category do student loans fall into?
Is Student Loan Debt Healthy?
If you are in debt, it means you owe a lender money. This lender could be your mortgage company, your credit card issuer, or in the case of student loans, the US Department of Education. And owing money can be onerous, as it means that a portion of your income is automatically allocated to an existing expense.
But if you owe money, it might be for a good reason, which is why it’s important to distinguish between “good” and “bad” debt. “Good” debt is generally defined as debt accumulated to finance something that will add value to you in the future. For example, when you buy a house, you take on mortgage debt, but there is a good chance that your house will appreciate in value over time.
On the other hand, when you accumulate credit card debt, you are not going to gain anything financially down the line. On the contrary, the items you buy with these credit cards will most likely lose value, and you will end up paying more for them by getting into debt and paying interest to your credit card company.
So where does student debt stand? In fact, it falls under the category of “good” debt.
Now you might be thinking, “But the value of my degree won’t necessarily increase over time, so why is student debt the right kind to have?” ”
The reason is that while your degree itself won’t necessarily be worth more (especially since degrees don’t have an obvious and clear monetary value to begin with), it will provide you with the opportunity to earn more money. over time.
Example: in 2015, college graduates earned 56% more on average than high school graduates, according to the Economic Policy Institute. That’s a pretty big gap.
This does not mean that university graduates always earn more than workers who don’t have a degree, but it’s fair to recognize that leaving college puts you in a stronger position to make more money up front. You are also more likely to continually increase your income over time. As such, student debt deserves its place in the category of “good” debt.
Manage this student debt wisely
Student debt might be healthy, but it’s still imperative that you stay on top of your loan repayments. Skipping payments – or delaying them – could affect your credit score as much as having piles of unhealthy credit card debt. Therefore, make an effort to pay off your student loans on time and in full each month. And if you can’t manage this at any point during your repayment period, explore the relief options. before get left behind.
If you’ve taken out federal loans, you can apply for a income based repayment plan to reduce your monthly payments. And while such plans don’t officially exist in the private student loan world, your lender may be willing to negotiate your terms if you ask for some leeway.
If you are going to take on debt, that might as well serve a valuable purpose. Student loans may seem like a drag, but in the grand scheme of debt, they are the right kind to have.