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Student Loans: "Good Debt" or "Bad Debt"

April 14, 2014

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6304808136_a4465d1240_zIs there truly such a thing as “good debt”? While looking around the PF blogger community, there are some who think of debt in terms of  “good debt” vs “bad debt”. One type of debt that seems to be debatable is student loans.

According to a recent article on Time Magazine’s website, student debt has increased over 300% in just ten years, (2003-2013) while the average American’s debt has risen just 43%. While I think 43% is bad enough, 300% just for student debt is outrageous!

The article goes on to say that many, many graduates are so burdened by student debt that they are forced to move back in with their parents after graduation and even post-pone other life events, like marriage, home and car ownership.

This news is eye-opening and scary, but what’s worse is how the rate of student loan delinquencies has risen. Delinquency has nearly doubled in the last decade, and the rate used for determining delinquency does not take into account the number of students who sought out payment deferments. Time estimated that with deferments and forbearances included, the delinquency rate would double yet again!

So, do we really think student loans are a “good debt”? I know I certainly don’t differentiate between my student loans and my consumer debt. It’s all debt and it all has to be paid off. I was lucky, I only had one year’s worth of student loan debt when I graduated college, I can’t imagine being one of those students struggling to find a job with a student loan balance much, much higher than mine. Kudos to those of you who have been there and done that!

The real question is, how can we break this cycle? I’ve talked before about how I don’t plan on having kids, but if for some wacky reason I do become a mom, I know I will be working to put money away for my kids. I will also be encouraging those close to me to put money away for their kids’ for future education expenses.

Now, I’m no saving expert, but I think I would look into all the options before choosing how to save. Maybe you should consider saving in a traditional savings account rather than an education/college specific account. You can’t see what the future holds and while a traditional savings account may not pay as much interest, there is a lot more flexibility in case your children or future children decide not to go to college. I think the traditional savings account is the route I would go if it were me because you never know what the future will hold*.

Do you think student loans are good or bad debt? Will you be saving for your children or future children’s education expenses?

*Disclaimer: I am not a Personal Finance expert. I am merely stating my opinion. You have every right to disagree. I encourage you to seek out professional assistance before doing any investing.

Check out my Pick My Brain page if you want to get a hold of me and talk!

Photo courtesy of: DonkeyHotey


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10 responses to “Student Loans: "Good Debt" or "Bad Debt"

  1. Hi Shoe!

    Student loans can be a good thing IF used responsibly. In my case, I was not responsible and in stead of using all the extra money I was given, I was not smart and spent it on things I can’t even remember that weren’t related to school.

    How can we break this cycle?

    I believe the biggest thing is educating young people about money. Showing them in school and in early life good, cold hard examples of debt, what can happen, and how you need to be smart. For example, using monopoly money, sit down with the kids and even teenagers and say ok, pay your bills, make sure you put away something for savings, but don’t deprive yourself. Bills come first, then play (i.e. a new piece of makeup, or video game). You want to go to school? this is what interest is, and ask them the simple question; are you willing to pay the government lots and lots of money for probably more than 10 years?

    When I was in elementary school and even high school, I don’t remember a lick about finances and now I watch my student loan balance climb as high as the sky to an amount that is as much as a damn mortgage.

    Another thing to break the cycle is educating students on what is actually out there in terms of employment and jobs; what fields actually hire. I hear it in movies “I have a major in Philosophy” “Oh yeah? and what are you hoping to do with that?” “Oh you know, taxi driver, fast food worker.” This is not to say that you can’t get a job or even a career with a degree in Philosophy, but I have a degree in Anthropology and the first question people ask is: “Well what is Anthropology? :S

    Take care, and I look forward to more posts:)

    1. Jen,

      These are all excellent points. I appreciate you taking the time to write them down. I agree that students loans can be good, but in the end, to me, debt is still debt that needs paid off.

      Education for young people is a great key to breaking the cycle, but I also believe what I touched on in the post, we (the young adults of today) need to educate our children and also be actively involved in saving for them and helping them save as they get older and are earing their own money.

      Talking with students realistically about what they want to do with their major is also very important. Again theses are all great points Jen! Thanks for sharing 🙂

  2. I don’t like distinguishing between good or bad debt because I believe debt is debt. There is risk in all debt that needs to be carefully weighed. With that said, I also believe that debt has it’s place too. When it comes to student loans, the biggest problem I see is because it is often categorized as good debt, people don’t think twice about it. Parents let their kids go to whatever school they want and accepts them without considering whether it financially is a good choice given what they want to do. We are diligently saving for our girls’ college education but you can also bet that we will be talking to them about what schools makes sense when we take a look at the return on investment too.

    1. Shannon,

      You have a great point of view. Looking at what schools make sense is a great thing to do and you’re right, not many parents do that. I also think you need to look at the return on investment for what your girls decide to study. I know that what to study and “what to be when you grow up” is not ALL about money, but it is not a wise decision to spend thousands of dollars on a degree that can’t be used without more and more schooling (master’s degrees, etc) unless you’ve planned for that expense ahead of time. Even with these advanced degrees, some people still can’t find work in their field or in a job of any kind that pays what is necessary to live well and pay back all those student loans.

  3. I don’t think there’s such thing as “good debt” or “bad debt” debt is debt. When I was paying off $30k of student loan debt I definitely wasn’t thinking about it being “good debt” I was just pissed I had so much and trying to pay it down as fast as possible. Somehow our society has socialized us to believe that certain types of debt are “better” or more “valid” then others. As with most things I think moderation is key. Too much debt is never a good thing, whether it’s student loan debt, mortgage debt or consumer debt.

    1. KK- I agree, debt is debt and it has to be paid off. The thing about student loans and mortgages is at least you have something to show for your debt – a house/property you can sell and an education you can use to, hopefully, increase your earning potential. It is still important even with these kinds of debt to only take on what you can afford.

  4. I think it is SO important to make a smart choice BEFORE you start taking on student loans (i.e. is college right for you, maybe you should not go to such an expensive school, etc.) but that being said, once the choice is made and the debt is incurred, I don’t stress too much about most student loan debt because the rates tend to be manageable. That being said, I was fortunate that my father paid for my college and I fully intend to pay for my son’s so he does not have the burden of debt as soon as he graduates.

    1. Shannon, you are so right! Deciding before incurring the debt is key. Sounds like you and I both have very helpful parents. My parents paid for my college tuition for the first 2 years, while I covered living expenses, books, etc. My 3rd and final year (I graduated early) I had to take out a student loan as the money my parents had put away for my education was gone.

  5. I’m late on commenting, but just recently found this post. I don’t think student loans are “good” or “bad”. For me they’ve been the grey area in between. No matter you dice it, you still have to pay the money back. I worked two jobs through college and even then couldn’t afford to pay cash as some people would suggest. I went to a state school. I bought used books. I did everything sensible even community college the first two years and still ended up with 20,000 in debt. That said, the debt is worth is because I have an education. I guess it’s “good”. For me it seemed there was no way to avoid debt, but I’m happy I was sensible about the cost of my schooling. Hindsight being 20/20 I wish I would have joined the military for the education benefits. For four years of service, I would have had a decent job, benefits AND then access to free schooling with a housing stipend. We’re a military family, so our (future) child will most likely have the GI Bill to use. If not, we’ll encourage community college then a state school.

    1. I worked my way though school as well and didn’t use my student loans to finance my living expenses. I tried to be very sensible about how much debt I was taking on, until my divorce hit. That’s when I got myself into this mess. Joining the military was something I never considered, but it could be a good idea for all the reasons you mentioned.

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