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Is Student Debt Considered 'Good' Debt?

By Maurie Backman – Updated Feb 6, 2020 at 7:55AM

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Not all debt is created equal. Here's how student debt ranks.


Bag of money next to piles of coins, the largest wearing a graduate cap.

Image source: Getty Images

The word "debt" tends to have a fairly negative connotation, but in reality, it's a common thing to have. Most people who own homes, for example, carry debt in the form of a mortgage, and in many cases, it's necessary to take on debt to acquire a vehicle. 

But not all debt is created equal. In fact, you'll often hear about the concept of "good" debt versus "bad" debt. The question is: Which category do student loans fall into?

Is student loan debt healthy?

If you have debt, it means you owe money to a lender. That lender could be your mortgage company, credit card issuer, or, in the case of student loans, the U.S. Department of Education. And owing money can be burdensome, because it means a portion of your income is automatically allocated to an existing expense. 

But if you're going to owe money, it might as well be for a good reason, which is why it's important to distinguish between "good" and "bad" debt. "Good" debt is generally defined as debt accrued to finance something that will give you added value in the future. For example, when you buy a home, you're taking on mortgage debt, but there's a good chance your home will increase in value over time. 

On the other hand, when you rack up credit card debt, you're not going to gain anything financially from it down the line. On the contrary -- the items you buy with those credit cards will most likely lose value, and you'll end up paying more for them by virtue of carrying debt and paying interest to your credit card company. 

So where does student debt fall into the mix? Actually, it goes in the "good" debt category. 

Now, you may be thinking: "But the value of my degree isn't necessarily going to increase over time, so why is student debt the good type to have?" 

The reason is that while your degree itself won't necessarily be worth more (especially since degrees don't have an obvious, clear-cut monetary value to begin with), it'll buy you the potential to earn more money over time. 

Case in point: In 2015, college graduates earned 56% more on average than high school graduates, according to the Economic Policy Institute. That's a pretty sizable gap.

Now this isn't to say that college graduates always earn more than workers who don't have degrees, but it's fair to acknowledge that finishing college puts you in a stronger position to earn more money initially. You are also more likely to continuously increase your earnings over time. As such, student debt earns its place in the "good" debt category. 

Manage that student debt wisely

Student debt may be the healthy kind to have, but it's still imperative that you stay on top of your loan payments. Skipping payments -- or making them late -- could hit your credit score as much as having piles of unhealthy credit card debt. Therefore, make it a point to pay your student loans on time and in full every month. And if you can't manage that at any point during your repayment period, explore relief options before letting yourself fall behind. 

If you took out federal loans, you can apply for an income-driven repayment plan to lower your monthly payments. And while such plans don't officially exist in the world of private student loans, your lender may be willing to negotiate your terms if you reach out and ask for some leeway.

If you're going to take on debt, it might as well serve a valuable purpose. Student loans might feel like a drag, but in the grand scheme of debt, they're the right kind to have.

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