Are Student Loans Good Or Bad - Choose Wisely

Still deciding student loans are right for you? Here is an indept study on debt. Differentiate between good and bad debt and learn how to convert student loan debt into good debt.

Updated by Priya Shah on 10th December 2019

Debt basically refers to borrowing or lending of money in order to add value, for a certain time period to fulfill our requirement. Debt may be good debt as well as bad debt too. Student loans help us in getting an education to add to our profile, but is the debt associated with student loans good or bad?

Debt is borrowed capital that needs to be returned after a certain period of time as according to the promissory note mentioned. Debt generally adds value to something that will appreciate or increase in value and make your loan worth the investment in time and money.

Debt can be owned by any particular/ individual, state, government, company.  No one likes the burden of debt, as paying a debt is a huge pain so let’s get an idea of making our bad debt into good debt in order to avoid the burden of paying the debt in a large row. 

Table of contents

Good debt vs bad debt

Debt is the borrowed capital or money that needs to be returned after a certain period of time, with an additional amount of interest charged. No debt is good. But lending money can be a way of making money. As per the old adage, “it takes money to make money”. If we are borrowing money in order to increase our net worth that can be considered as a positive side of good debt.

Debts are borrowed on some specifications like higher education, home loans, purchase of car assets, etc. education can be considered as the main one where higher education leads to better qualitative employment. education makes us capable of creating value in not only our personality but our regular lifestyle. 

Few important terms to consider are - 

  •  Higher education leads to good employment, it has a positive correlation with the ability to find employment. Better education workers are more likely to be employed in good-paying jobs and tend to have an easier time finding new opportunities. 

  • Entrepreneurship development, every single person does want to make money either for themselves, their family or as a social worker. But that requires a lot of potential money and effort. Making money can be one of the main reasons to start a small business, earning potential can be directly improved as per the willingness to work hard and harder. 

  • Any debt can be considered as good or bad depending on the varieties of ways of making money unless you make it worth, like commercial real estate also can be an excellent source of cash flow and capital gain.

Bad debt likely can be framed as those loans or money creating a way more trouble in returning of capital if good debts have the potential of increasing the net worth than bad debt can be completely opposite to it and can be more in depreciating assets. Some items that are particularly noted under bad debts are a car, credit card bills, home loans,  etc. Bad debts are those amounts that are not being returned may be due to many consequences.

Vehicles can be kind of a worth waste for landing into bad debt because taking a loan on vehicles can cost a lot of money, paying a long term interest on vehicles can be hectic. By the time loan gets over for vehicles it’s already less than the worth it was. so if you can’t take out a loan to buy the least expensive reliable vehicle you can find and pay it off as quickly as you can in order to avoid bad debt.

Spending a large amount of money on something that does have a huge amount of returning will always land you into a big debt. Credit can be a big form of bad debt due to its high rate of interest and the payment process is scheduled to maximize cost. 


Are student loans good or bad?

Loans are always considered as a  burden either it being good or bad. Misusing means not paying the debt on time, upon the installment case of frauds and etc.  well let’s see some key points of good and bad debt.

How debt can be a good thing?

Debt is the borrowed capital for something in order to increase the value and make the capital more worth the investment and money. Paying off your loans on time can always be an added advantage as well as it helps to avoid debt turn bad. 

Taking or borrowing is not as hard as paying it back, ensuring to pay back on time is the greatest deal. A business loan may be staying on the good side of debt since the money invested should be paid off over time if they want there to be a venture to be successful

“Debt is always good when it is manageable”.so always try making it good by paying off it on time in order to avoid any consequences of default and further all. 

And the basic point can also be taken into consideration always taking debt as lower interest as you can because a lower amount of money is manageable to pay but a higher rate of interest is quite unmanageable. So always go for something that is affordable and capable of paying off your debt in order to create an unnecessary burden. 


Worried about your college tuition? Learn more about student loans


How debt can be a bad thing?

The sort of amount that is not affordable or manageable to pay back always lands us to the bad debt section. Mortgage,  credit cards are always a sort of bad debt because it can heavily create a problem while returning due to high rates of interest and also maybe because of the high depreciation that decreases at a very high speed.” debt is always bad when it is unmanageable”, and incapability of paying off that runs out of budget and you can no longer pay it back and later on it creates a burden.

Debt always turns bad when you are no longer capable of paying it back or you don’t want it back, it can be your will as well as concern too. In fact, student loans can be narrow down to simply “good  Or “bad”. Since every financial and lending need does differ from each other. Loans can lead to delinquency and even default. So apparently it can be bad debt if the lent amount is not paid.


How to make student loans into good debt?

Student loan debt is basically not a problem but a huge crisis. That leads students to deep economic consequences. But with all these, there is a good side to make it look positive also. It is also expected as good debt because they provide educational opportunities that provide the student with a huge opportunity to not only built a career but strong job employment. Student loans can not be easy.  In order to make student loan affordable, easy, and more predictable, here are some highlighted points to make it clear -

  • Student loans don't have a statute of limitations so, rather Make sure you consolidate all of your loans. Missing a single installment may hamper your credit score.

  • In case if you miss your installment try paying back at a specific time, reporting to the credit bureau. Don't wait till the next date to come which can increase your payment and interest too.

  • Instead of avoiding try paying minimum as much as you can. Missing out on payments is harder to catch up and eventually may get into default.

  • Try paying off using credit cards often as it has a huge rate of interest and will tune it to pay it more carefully.

  • Keeping a track record of your monthly budget to ensure your money to cover monthly expenses.


A brief history of student loan

When we see a loan we get a brief idea of money, capital interest rates and much more.  All of us want to minimize that interest on loan amount in any way possible to reduce our burden and increase our lifetime potential earnings and savings.

Loan or borrowing capital is not a new term but a term that was originated long back to create and encourage students to achieve a qualitative lifestyle with good employment earnings. Paying back loans on proper time basically shows the capability to repay a loan and prove your creditworthiness, which can, in turn, increase your credit score. Good debts always give a value that increases over time but bad debts always leave a negative impact on our credit history.

Student loan was originated in the 13th century at Oxford, where the loan was permitted as per something in return to provide the student with a good amount of loan.  Harvard was credited with creating the first true” student loan” in America offering student zero-interest loans, to those who couldn't afford to pay to attend schooling. 

1838 - The first zero-interest loan was issued to needy students in Harvard.  Who did not require any form of alternative borrowing money to attend? As well as Harvard benefactors paid the students who in exchange prayed for them.

1944 - After 100 years later when the US government got involved in rolling out money for studies. After World War II young soldiers were coming back and needed to become working members of society. President franklin d Roosevelt signed the G.I bill that gave up to $500 per year to help the students pay for their schooling and living costs.

1958 - President  Dwight D. Eisenhower signed the National Defense Education Act to keep up with Russia's space program. It helped students by giving money to those in the field pertaining to the national defense and later on creating a  loan called national defense student loan which eventually became Perkins loan. The Perkins loan program expired on Sept 30th,2017. 

1965 -  The higher education act basically took the NDEA and expanded it to all students, regardless of their own specific major.

1972 - Pell grants created under the basic educational opportunity grant named for sen. Claiborne Pell, it gives students up to $5920 per year with no repayment back

1992 - The new aid FAFSA. (Free Application for Federal Student Aid) was created  in an act of higher education act. After which Stafford loans were created.


Cost of a student loan 

Higher studies are getting expensive day by day which is creating a huge problem for the students who want to pursue their higher studies. We cannot deny the fact that higher studies add more value to the certificate as well as our career too. The college degree is most likely to be a good investment for our future, but the problem that arises now is the cost of student loan that is associated to cost as far as standardized.
Things that need to be pointed and more focused while choosing colleges are very much important as choosing the one which is in our budget as affordable too so that we can pay off without any troublesome.

While financial aid can cut down the cost of earning a college degree quite significantly. It all comes down to the importance of handling the debts associated with getting your degree to avail of the benefits.