Understanding Good Debt: Student Loans and Financial Benefits

The debate between good debt and bad debt has been a hot topic for many years, but one type of debt that is often considered “good” is student loans. Student loans are seen as an investment in one’s future, with the potential to lead to higher earning potential and career opportunities.

According to data from the U.S. Bureau of Labor Statistics, individuals with a bachelor’s degree earned an average of $1,493 per week in 2023, compared to $899 for those with just a high school diploma. This higher earning potential is one of the key reasons why student loans are typically viewed as good debt.

Additionally, student loans often come with lower interest rates compared to other types of debt, such as credit card debt. Federal student loans, in particular, offer competitive fixed interest rates that can make repayment more manageable. Furthermore, student loans offer flexible repayment options, including income-driven repayment plans that can adjust based on your income level.

Moreover, there are potential tax deductions available for student loan interest payments, as well as loan forgiveness programs for certain professions, such as Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness.

However, there are risks and drawbacks associated with student loans as well. Choosing the wrong degree, facing unemployment or underemployment after graduation, and struggling with debt repayment can all lead to financial stress and credit issues. Student loans are also notoriously difficult to discharge in bankruptcy.

Overall, student loans can be considered good debt if they help you earn a college degree, lead to higher earnings, and are managed responsibly. It’s important to carefully consider the costs and benefits of taking on student loan debt and to explore repayment strategies to ensure that the investment pays off in the long run.