Are Student Loans Considered Good Debt?

Tricia Christensen
Tricia Christensen

You can define good debt as borrowing for things that will appreciate in value, or will not depreciate. In other words, when you borrow money to invest in something durable and you’ll see a tangible return on that money, you’ve acquired good debt. Nearly all good debt is characterized by lower interest rates, and it includes loans to purchase property, or to start a business. Student loans are considered good debt under many circumstances because they usually have low interest rates and they represent an investment in your ability to make more money. Since a college educated person is likely to make more money than someone without a college education, most credit agencies see your student loans as good debt.

A student loan application form.
A student loan application form.

There are some that argue that any debt is bad debt since you have to pay it off. If you apply for other loans when you already have large student loans, potential creditors will still weigh your debt to income ratio to see if you can really afford to make payments on another loan. When you have several tens of thousands of dollars in student loans, even though this debt is considered “good,” it may still affect your ability to purchase other things with credit, like homes or cars.

Failure to comply with student loan payment schedules can easily wreak havoc on your credit rating. Like any debt, not paying on time or missing payments can lower your credit score and subject you to fines or fees. Additionally, although loans for students are considered good, they don’t equally benefit all. If you take out loans and don’t finish your college education, you may not have increased your earning potential. Some fields of study notoriously don’t have high paying jobs when you do finish school.

If you earn your teaching credential, for instance, you may have a difficult time managing high payments for large loans on a relatively small starting salary. It makes sense to evaluate the earning potential of the field you plan to enter, and use this information to make prudent decisions about loans. When other sources of funding are not available to you, you may also want to consider choosing colleges that cost less so that your total amount owed when you finish college is not prohibitively expensive.

One significant difference between student loans and other types of good debt is that you’re not investing in something you can return. If you take out a mortgage on a house, or you fund a business, you may be able to repay the loan by selling the house or the business. You can’t sell your college education, and barring a few circumstances like permanent and total disability, you cannot escape paying student loans.

Declaring bankruptcy will not clear most student loans, as it might with business loans or mortgages. Essentially you are stuck with this debt, which though it may be considered good, can also be very bad when you’re not making enough to repay it. Many loans do have options to defer repayment, but these are of short duration and it usually means you acquire interest while the loan is being deferred. Furthermore, if you default on any of your loans and plan to go back to college, don’t expect to be able to get more loans. You have to maintain a consistent payment schedule, repay anything you may owe in back payments, and clear up the default before you get more student loans to continue or finish a college education.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent wiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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Discussion Comments


@Sunshine31-I just wanted to say that my husband worked with this lady whose daughter took out college student loans after getting a small scholarship.

She went away to live on campus and this school was $40,000 a year. She took out a loan for $20,000, but ended up moving back because she flunked out her first semester because she was partying too much.

This is why I think that most college students should go to a local university, save up money and commute to school and as a junior they can transfer to the college that they want that way they are mature enough to handle college and are not saddled with so much debt when they graduate.

This is what I did and I was able to pay off my student loans within the first two years of my college graduation. I didn’t have to worry about student loan consolidations or taking out personal student loans because I was able to work part time and payoff the rest a few years after I graduated.


@Cupcake15 -I agree and I would say that just like the credit card companies are forced to disclose how long it would take to repay a debt on a credit card,I think that when you apply for a student loan this information should be available as well because a lot of college students get caught up in the moment of going to school and having fun that they forget to plan for their life when they graduate.

I heard a caller call into to a financial radio show that took out graduate student loans in excess of $150,000 in order to get her PhD in education. She just graduated and now earns $50,000 working as a professor in a college.

While this is an interesting field, if she had gone to a public university or worked as a graduate assistant she would have had to pay back probably a third of that amount.


@Subway11 -I agree. I know that student loans are usually considered good debt, but I think you have to balance the potential debt with the salary you might receive upon graduation. Spending $100,000 to earn $30,000 a year does not make a lot of sense.

College is great and if you are pursuing a degree that does not pay well, then you should consider an state school in which the instate tuition would be substantially lower. The average four year state college tuition is about $12,000 a year. Staying local might make more sense because your dream career might be a nightmare if you are saddled with $100,000 of debt.

Also, if you work part time even at the school this will offset the costs of college dramatically. The college experience is what you make of it. I have a sister that is a lawyer and one that is a Vice President of a cosmetics company.

The sister that is a VP for the cosmetics firm earns five times what my other sister that is a lawyer earns and she only has an associate’s degree. So the degree is important but it is only a factor in your success.


I think that too many college students have a lot of college student loans and are often overwhelmed with the amount of debt that they have incurred. What makes matter worse is that some of the college graduates are having a tough time finding jobs and when they do they are not making the amount of money that they had anticipated.

Student loans, like the writer said cannot be eliminated in a bankruptcy so it is really important for college students to understand the implications of borrowing so much money.

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