Student Loans Good Debt???

[sweeps]

if a person kept 300k in savings, there is a much bigger problem. My 300k would be earning north of 6% somewhere in other than a savings account.

Agreed, but you said "300k in bank".

[bjl584]

Steve, don't argue with people who don't get math. It's like explaining why money in the bank is better than a paid for home. If you have $300k home and $300k in bank you are the same as the person with $300k paid for home. But some people don't get it, they only see the word debt. They can't see the forest for the trees.

Anyway, student loan debt is not necessarily bad. Would you prefer all doctors only come from rich families who can afford it? Or would you prefer it be the best suited, most capable people? If we didn't have student loans, going to school would be a class based system, which would only be available for those rich enough to afford it.

I got an A in Calculus and Statistics. I understand math just fine. I understand that it is better to keep debt if you can earn a higher return elsewhere. What I am talking about is a situation where someone is reluctant to get rid of debt because of the fact that a higher return can be earned somewhere else. They keep accruing more and more debt because they finance everything instead of paying cash. They are so reluctant to part with their savings that they are forced to take out a loan everytime that they want or need something. It's not that they don't have liquidity or the means to buy something, they just choose to not part with it. Unchecked, you may very well run into a situation where all of the money that you earn is being eaten up to pay back loans. All because you thought that it would be better to finance your purchase. By the way, if I needed $300K immediately, I would rather have it in the bank. A house is worthless until you can sell it. Until then, it's nothing but a place to keep the rain out.

[PIGGLE]

First post, great board.

I just built a house and have six figure student loans. I will not pay them off because I make 5.8% in my savings account and my loan interest rate is 3%. I don't understand what the confusion could be on this. You can also write off the interest up to $75k AGI I believe.

When I was shopping for a mortage all banks told me they ignore the student loans as long as you have had the same job for more than a year and also have a credit score over 700.

I think my student loans are great. They have enabled me to get a great education and the ROI calculation even works out in my favor.

[getrichslow]

[QUOTE=PIGGLE;149347]First post, great board.

I just built a house and have six figure student loans. I will not pay them off because I make 5.8% in my savings account and my loan interest rate is 3%. I don't understand what the confusion could be on this. You can also write off the interest up to $75k AGI I believe.

When I was shopping for a mortage all banks told me they ignore the student loans as long as you have had the same job for more than a year and also have a credit score over 700.
QUOTE]


You will have to pay those loans back someday, even if you consolidate you get 30 years. If you are going to consolidate do it soon, lenders are running away from that segment of student loans.

I would love to know the names of the banks that told you they would ignore student loan debt of over $100k based on a 700 FICO.

[PIGGLE]

Consolidation is done, I don't think I'm going to find much better than 3% on my student loans.

BOA
Community Bank
Harbor One
Bridgewater Savings
Country Wide

[maat55]

Until you can save more in taxes than you are paying in interest, there is no good tax deduction, only ones you take advantage of after taking a beating on the interest.

As far as SL's being good debt, thats only if the education you obtain provides a worthy income. Being debt free including the SL and house dispite their tax deductions is my preference.

I'd rather pay a little more tax than a lot more interest.

[disneysteve]

As far as SL's being good debt, thats only if the education you obtain provides a worthy income.

Very good point. If you borrow $50,000 to get a degree that gets you a job earning $100,000, that's good debt. If you borrow $100,000 to get a degree that gets you a job earning $30,000, that's bad debt.

[Snave]

There is one MAJOR thing we all need to remember about not paying off a debt early b/c you can get a higher return for their money elsewhere. That is, you have to be investing that money elsewhere! If at the end of the month you have several hundred dollars to either pay off the student loan or invest, the only way you are truely doing yourself a favor is if you do invest that money. If you spend it, then the theory about earning a higher rate of return goes out the window. My guess is that the friends of the OP that have the student debt are not investing the difference every month.

[PIGGLE]

Great point Snave, that is the key.

[Like2Plan]

I think the student loan is a good tool if it helps you achieve your goals.

Just as the mortgage question is rarely an either/or question, I think there are several aspects to the student loan question as well.

What I wonder about is taking on loans (with "cheap money") but still buying all the latest consumer gadgets and going on trips on spring break, et'c... Is financing the purchase of a vacation or an iPod for 10 or 15 years (even at 3%) a good deal? How often do savvy kids use the absolute bare minimum and then invest what is left over ( assuming there is a little left over)?

When the kids graduate college, conventional wisdom is keep the student loan for as long as possible and invest the difference (assuming a low interest rate). But, with some of these back breaking payments that ties up a lot of cash flow, I am wondering how many folks have anything left over to invest? If they do have money left over, I am wondering how many folks actually make investments?

[Scanner]

I think if you were to poll the pundits, they would say debt falls in order of good to evil in this order:

1. Mortgage
2. Student Loan
3. Auto loan
4. Consumer debt

(I left out business loans here purposely)

It has to do with how deductible it is on taxes.

I personally hate student loan debt though because it can't be discharged unless under the most dire of circumstances. You go belly up on an auto loan. . .they get the car and you declare bankruptcy.

You just don't have that protection on student loans.

The gov't is a poor lender.

[neguy11]

Student loans are great....if you graduate, if you have a degree that will get your a job, and if you can actually repay the loans. Taking out 50 grand to get a degree in basket weaving is not a smart idea.

I work in student loan customer service and it's quite the depressing job. Of course I usually only deal with the irresponsible borrowers, but it's frustarating...we offer so much assistance, but you can't wait until your 9 months past due to give us a call! I've seen some literal *horror stories* that could have been prevented if the borrower would have simply opened their mail and given us a call.

Because of this I wouldn't call student loans "good" debt. Whether it is "good" debt ultimately depends on the borrower taking otu the loan.

[disneysteve]

Whether it is "good" debt ultimately depends on the borrower taking otu the loan.

This is really true of all loans, I suppose. Hundreds of thousands of people now facing foreclosure have learned that a mortgage is "bad" debt if you borrowed way more than you could afford. On the flip side, a car loan can be "good" debt if getting that car enables you to take a great, much higher paying job at a location not accessible by public transportation.

So bottom line is that no debt is necessarily bad or good. It really depends how it is employed. Even credit card debt might be "good" if it allowed you to pay for life-saving medical treatment that you had no other means to afford.