Millions of people think student loans are good debt. They are wrong. There is no such thing as good debt.
There are two types of debt most people think are good:
- Student Loans
I think was all understand why a mortgage is bad debt. If you forget, go back to 2008 and look at the mortgage crisis. Then look at what banks are doing differently and ask yourself if they learned anything. (Spoiler alert: they didn’t).
Student loans are trickier.
Few people would say college is a bad thing. In fact, college can be a really good thing! Most higher paying jobs expect a bachelor’s degree. And there is no denying a “club” exists that you join when your resume has “Bachelor’s of…” on it. But that does not make going into debt for college a good thing.
3 Reasons Student Loans Are Horrible
They Allow Uncertainty
Half of students who declare a major when they enter college will change it at least once (some more than that). Many students don’t even pick a major until two or three years in! That is $4,000 or more per semester going nowhere. Students I speak to take out a lot more than four grand a semester. I have heard of people who borrow $20,000 a semester. One of these students didn’t even have a major!
That is stupid.
At least with credit cards you are actually buying something. With student loans teenagers feel they can take their time deciding what to “buy” at college without suffering consequences.
But the consequences are coming.
They Are Unbankruptable
Let’s say a few years after college you get laid off and your emergency fund runs out. You can’t get a job anywhere except McDonald’s and you decide to file bankruptcy to get rid of the loans and move on with your life.
Sadly, it won’t help.
Student loans never go away – ever. There is nothing you can do to drop them. Even bankruptcy doesn’t protect you. The only way to get rid of a student loan is to pay it off and for most “normal” people that doesn’t happen for 20 or 30 years!
This fantastic info graphic explains it well.
No Income Guarantees.
I have never seen a college guarantee post-graduate income. I have seen a lot of other promises but never income.
I bring this up because I hear people say “don’t take out more loans than you could reasonably expect to make your first year of work.” The problem with that logic is you can never know how much money you will make. Some industries disappear. Other folks never work in the industry they went to school for. Other degrees (like social work) cost double or triple what a person could reasonably expect to make in a year.
Without an income guarantee there is no way of knowing when or if you will be able to reasonably pay off your student loans
What To Do
Going to college can be a really great thing; but only if you have a plan.
Start with a direction. It is okay to change majors as you grow older, but entering college without any direction will cost a lot of money without any reward.
Then, instead of taking out student loans figure out what you can afford (this may mean community college for a few years) and pay for it with cash. Only look at private schools if you can afford to pay the tuition.
Finally, remember that the most important part of college is what you learn. Some of the world’s most successful people didn’t graduate. College is not the be-all-end-all to a great life.
Am I too harsh on student loans? Have they been a blessing in your life? Let me know in the comments