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Student loans are not “good debt”

Student loans are not “good debt”

“Good debt” is often defined (by those who believe in it) as debt that’s taken out on an appreciating asset. Houses and student loans are generally lumped into that category. The idea behind taking on “good debt” is that you are risking some money now for a greater return later.

For example, you might go to college with the expectation of landing a good job upon graduation, making it easy to mentally justify taking out loans.

The problem with this thinking is that not everyone who attends college (or graduates) ends up with a good job afterwards, let alone a job that’s high-paying enough to quickly pay off student loans. This happens for a variety of reasons:

You might spend a lot of money on a degree in a profession that’s historically underpaid. (Such as teaching or social work.) You’re left with overwhelming debt and little means to repay it.

Or you may get a degree in a field that doesn’t have obviously translatable job skills, such as history or philosophy. The job you take after college may not even require a degree at all. Sure, it’s nice to have the degree, but that degree did NOT lead to greater return. Is that worth going into debt for?

Or you may get an undergraduate degree in a very specific field that IS obviously translatable, but that requires a graduate degree before even an entry-level job in that field can be obtained. If you can’t go on to graduate school (which often requires top-notch grades, fierce competition, testing, applying to multiple schools, moving, and additional time & money commitments) you may find yourself in the same boat as the person with a more general degree. In a sense this can be worse, because potential employers may review your resume and wonder why you’re applying for a completely different type of job.

You might take a job in your field, only quickly realize that it is NOT for you after all. Or you might want to be a stay at home parent. Do you want to be stuck working in a job you hate just because you have huge student loans hanging over your head?

Of course, no one goes to school with the idea that they’ll leave with some nice memories, knowledge that’s forgotten over the years, a piece of paper, and a pile of debt. Everyone thinks they’ll be the exception, and go on to make beaucoup bucks right out of college, love their jobs, and watch their lives fall exactly into place like the pieces of a puzzle.

But most people don’t.

That’s why they call it an exception. Life happens. People change. Circumstances change.

You cannot count on things going according to plan. You cannot use the phrase “education is an appreciating asset” or “I’m investing in my future” as an excuse to borrow tens of thousands of dollars because it’s “good debt” that “everyone” has.

It’s not, and they don’t.

I do believe that college is a good thing, especially if you go for reasons that are meaningful to you and you have realistic expectations about what your degree may or may not lead to. But I also believe you should do everything possible to stay out of debt while you’re doing so. Apply for scholarships, grants, jobs, employer reimbursements, go part time, do the 7 year plan, work and save up some money first, whatever it takes.

Get more from your education than the need to make a large monthly payment for the next 20+ years.

View Comments (9)
  • I take issue with your post.

    I agree that debt is bad. It should be avoided whenever possible. And it
    usually is possible to avoid debt, with a little planning and patience. But on
    the issue of education, you are painting with an awfully broad brush.

    As with all money matters, it is important to look at the costs and the associated
    benefits. It is no different with college. As with any investment, you have to
    evaluate the risks. In the case of that history degree, there may not be as much
    potential for higher paying jobs, and that should certainly factor into your cost/
    benefit analysis, regardless of whether you are borrowing money or liquidating
    assets to finance it. You may even pursue a degree in a field with a ton of job
    prospects, but you may find that by the time you graduate, many other people
    had the same idea, and jobs are scarse… or you may find you don’t like it after
    all… or or or.

    HOWEVER, it may make sense to borrow in order to finance one’s education.
    Those with college degrees have more job opportunities than those without
    a degree. A college education can mean the difference between being given
    an interview and being passed over, ESPECIALLY when you are just starting out,
    and you may not have an impressive work history to help get your foot in the
    door. Like it or not, educational achievement is taken into account when
    potential employers are screening applicants, and can even be a factor when
    it comes to promotions. Finally, those with college degrees have a higher
    average wage/salary than those without.

    There have been those who have been wildly successful without a degree,
    and poor doctorate graduates who are woefully unsuccessful. Education isn’t
    the whole game. I don’t see the potential of greater opportunities and wages
    as an exception, however, as you seem to be implying.

    I really like your emphasis on applying for scholarships, grants, employer
    reimbursement programs and the like. If one does decide to borrow for
    education, student loan payments are often deferred until after the student
    is out of school. The interest on the loan may also be deferred until the student
    is out of school, depending on the loan program. Loan rates are often lower
    than what you can get with other types of loans. Is loan interest tax deductable?
    I can’t quite remember.

    And no, I’m not offering financial or tax… just offering an opinion.

    (By the way, the google ads box on your site runs right through the comment
    box, making it difficult to impossible to see what’s being typed… which is why
    I kept adding line feeds to this very long comment.)

  • I agree that it isn’t good debt. I’m glad I went to college, which I did with debt, but if I had tried harder I could have done it by borrowing much less money.

    I would never tell someone to not go to school if the only options were borrow money and go to school or don’t borrow money and not go to school. However, I would strongly encourage someone to do everything they can to borrow *less* or no money AND go to school.

    Unless you are lucky, you just don’t come out of college and make as much money as you thought you would (or you do and you spend it) and those student loan debts linger far too long.

  • I have to agree with Paul on almost everything he says. IF you can make it out of college on grants, scholarships, serious financial aid, great. Unfortunately, most folks can’t do that. I did take out student loans for both undergraduate and graduate school, I got great financial aid, but I needed loans to cover the rest.

    I don’t consider my student loans bad debt, I do consider them an investment in my future. I was lucky, I did work in my field of study for a number of years. I know I would not have been able to get a job in my field without the college education.

  • Hi Paul, I agree with pretty much everything you’re saying. In fact, that’s my point. The idea is that people shouldn’t go out and borrow up a storm for college because they’re writing it off as “good debt”. They should investigate and be really sure of what they’re getting into; what the worst case scenario would be, how they would feel if they ended up doing something totally different, etc.

  • Here, here!

    I couldn’t agree with your stance more… Student loans aren’t usually a good financial move…

  • The average college graduate earns $1 million more than a high school graduate over a lifetime. (

    So please explain to me:

    A. How student loans are not good debt.

    B. @brainy: Student loans aren’t usually a good financial move

    The most expensive college educations in the country don’t cost anywhere near $1 million, and even if 100% financed would still result in a net financial benefit for most.

    If I could invest a few 10s of thousands of dollars in something that will result in $1 million in 30 or 40 years, I would consider it a good investment — even if I had to borrow to do it. That’s exactly what a student loan is.

  • I want to hear more people say this. Every college student needs to be more savvy about how much they are paying for their education and where that money is coming from. Loans are OK, but they should be the last resort instead of the first. Scholarships, working (even if it means slowing down the education), and less-expensive schools should all be considered as part of the college plan.

    I went to an expensive private school and didn’t really look at any of the numbers until I was done… I happened to come out with relatively little debt (thanks Mom & Dad!) but I had many friends who weren’t so lucky. They’ll be slaving away at jobs they HATE for years to come because they didn’t try to bring down the cost of their education beforehand.

    Oh, and I had no way of knowing as a student that I would eventually get married and want to become a stay-at-home parent; it’s going to be a really tough thing to do because of my husband’s and my loans. If either (or both) of us had gone to less expensive schools or found other ways to finance our educations, the financial transition to parenthood would be an easier one.

  • Correct! Debt is not good specially if you were still studying. At early stage you have a debt!?.You are teaching yourself like not valuing money.


  • Not Correct, but not Incorrect. If you are planning (I was annal person from begining of college) you can take out all your loans (WHAT?!?!?) place the extra in a IRA. My loans are at 5-6% lower than any loans you can find or get with a credit card. Currenly I have more in my IRA than I owe… Plus you forget about the tax incentive so I am really only paying 4-5% in interest in the market you can make about 8%. Worse case with normal inflation of 3% you still make 1% off that money you never had!!
    If your a student and think of it as free money that is INCORRECT thought. Using the money other than smart investing in yourself (School) or Future Self (Retirement) is the worst thing you can do. Try to live in the future and not today. Make a budget and stick to it is the best advise i can give without going into detail. Pay for your basic food,shelter,and education the rest will come later in life. remember life is all about PLAN PLAN PLANNING …. Life will throw curve balls but if you planned it will be better than if you did not!

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