In today’s post, we examine why debts that many people have been told are “good” may not be so good and what to do about it. In Part 1, we looked at housing and what has happened over time as home buyers bought more house than they could afford and found out that there can, in fact, be too much of a good thing.
Today, we consider student debt.
Student Debt:
Claim: Student debt is a good investment, since college graduates earn significantly more than those without a college degree.
This is true, but recent graduates have increased their level of debt to the point where their debt levels are often unmanageable and recent grads have become one of the quickest growing segments of new bankruptcies. According to the American Association of State Colleges, two out of three college students graduate with debt and the average borrower who graduates from a public college owes $17,250 from student loans. Ten years ago, the average student borrower attending a public college or university graduated owing $8,000 from student loans (adjusted for inflation). Students are even paying for college on their credit cards, which have significantly higher interest rates than subsidized or unsubsidized federal student loans. A recent survey by the National Association of College and University Business Officers found that credit cards account for 18 percent of tuition payments.
When not managed wisely, this debt becomes an impediment to buying a car, purchasing a house, getting married, or attaining other financial goals. To ensure that your education is an investment rather than a burden, chose a school that meets your budget and chose an area of study and career that will enable you to successfully pay off your debt. Take advantage of low-cost subsidized loans rather than private educational loans, and keep credit card debt to a minimum.
Turn into tomorrow when we discuss why taking out an auto loan isn’t such a great idea if you can avoid it.
Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
Tags: bad debt, Consumer debt, debt managment, DebtGoal, good debt, student debt, student loan
