Are College Loans Always “Good” Debt?

Posted By Frank

BillSavings.com Brief:

Many students are comfortable borrowing to go to school, but its important not to let your education get you in over your head.

Under most circumstances, there are a number of debt obligations that most consumers tend to think of as a “normal” or “good” parts of their finances. Mortgages are one example, as owning a home provides certain tax benefits, building equity, and of course a roof over your head (whether it makes more sense than rent is beyond the scope of this post, but let's just say one is not always better than the other). Likewise student loans are often viewed as a necessary evil on the road of your education. In exchange for taking on debt you are (usually) rewarded with a higher paying job and a more comfortable lifestyle. But are all student loans created equal? Should we be comfortable with having loans lying around collecting interest? A recent article at Yahoo! Finance suggests otherwise.

Like anything finance and job related, you can't always trust the numbers. The article uses the example of a student recently graduated who expected to be making a figure cited by her counselor at school, around $65,000. Instead, she started at $35,000, with her loan obligations being $140,000. She maxed out her forbearance periods, which tacked on an additional $20,000-$30,000 in loans.

Ouch.

The article goes on to suggest that we should banish the idea of student loans being “good” debt entirely, and instead focus on the risk of borrowing extensively for an education and the impact it will have on your financial life down the road. I tend to agree with the notion, though personally I see all debt as inherently bad. Its important for consumers of student loans to analyze their realistic salary potential and decide whether a loan will be too much for you to handle or something you can realistically pay come graduation. Failure to do so can result in many years of anxiety and potential financial duress.

Category: Debt Solutions

8/25/2008

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