Student Loans a "good" debt?

[cptacek]

Have a question for y'all. I know that most people accept Student Loans as an acceptable debt. And I agree, if you need to take out a student loan in order to go to school, that is a potentially great investment (if you you get a degree in something that will increase your earning power).

But after the fact, after you are done with school and have started your job, is it still an "acceptable" debt? Lots of people lump it in with the mortgage and car loans as just part of being American, but really, after you don't have a need for it anymore, shouldn't it be put up in your list of percentage sorted debts to get rid of in order?

It may be tax deductable, and if that is the case, then I think you should figure out the tax benefits and list its interest rate as an effective interest rate instead of an actual interest rate. But, I feel it should go right down on the list just like every other debt.

[Broken Arrow]

To me, there is no such thing as a good debt.

Please allow me to re-iterate: NO SUCH THING.

Rather, it's more like choosing the lesser of two evils. And in that sense, a student loan is "less evil" in my book than, say, a car loan or a credit card debt.

I for one am working feverishly to get rid of it.

[b4freedom]

I think the questions should be:
Is the debt from a student loan manageable?
Is it wiser to pay it off quickly or invest the money?
Can I live with debt?

First question: I have a friend with $140,000+ of student loan debt. Yes, $140,000+. In my opinion, that’s unmanageable. She has already defaulted on the loans which have resulted in some very bad things. If you have $20,000 in student loans, then it might be manageable for you. But, it depends on your situation. Part of the problem I see is that students get the mentality of “Borrow now, repay later.” It’s easy to borrow now, it’s harder to repay later. So, student loan debt can be very dangerous for some.

Second Question: My wife pays 2.25% on her student loans. In my opinion, it’s not worth paying that off. It is better to apply extra payments towards tax preferred retirement tools such as an IRA. Even my money market account is earning double the interest (4.65%) that I pay on her student loans. However, if my wife was paying 8.50%, we’d be paying it off quickly.

Last Question: There is the “can I live with debt” factor. Some people can’t live with debt. No matter what kind of debt or how little it is, they can’t live with them. Debt hangs over their head like a rainy cloud. We are comfortable with some minor manageable debt, such as student loans.

So summarize, If you think that the debt is manageable, if you think it makes better long term financial sense to invest instead of prepay the debt, and if you can live with it, I’d say, keep the debt. Otherwise, pay it off and move on.

[Broken Arrow]

I agree about interest rates. If they're that low, it may be better off focusing your money elsewhere. Alas, mine isn't that low, but it is fixed at 5%. It's still worth it to me to get rid of it because that also has the added bonus of lowering my monthly budget, thus giving me more financial clout to do other things later on.

[markio26]

pay off your debt as soon as you can...it brings so much freedom back into your life...chip away at the student loans... i paid mine back in 4 yrs..but, it was priority one at the time...

[cptacek]

Thanks b4freedom. I think those three questions are exactly correct. My student loan is at 3.37%, so any other debt that has a higher percentage effective interest rate will be paid off first, and then if I am getting higher returns from savings, I'll go there.

[lillyb]

We're doing ours in order from highest to lowest in paying off our debts.

[PRICEPLUS]

Student loan is good if it increases your earning power in a positive ratio to incurred costs. So whether it is bad or good depends on your personal circumstances.