Student Debt is Good Debt – Is It Really?
The American dream, or maybe I should say expectation: Attend college, earn your Bachelor’s degree, maybe your Master’s, land a great paying job, which will kick off an amazing career, live on your own, own a home down the road, save money for retirement……STOP! Yes, many want this, actually dream about it, who wouldn’t, but at what cost? And, will we ever get there?
Students are told time and time again that investing in your college career by taking on debt is good debt. After all, it’s an investment in your future! Well, this may be well and good, as long as it is done in a manageable, educated and responsible fashion.
Understanding Student Debt
The fact of the matter is, students don’t understand what debt is and what effect, often dramatic, it will have on their lives down the road, when it is too late to turn back and alter the outcome. Teenagers live in the here and now and have no clue what borrowing money now to pay off later means.
Let’s look at the math. To reasonably afford a $279 per month student loan payment you need to have an annual income of at least $50,000 per year. What does this amount to? At a 5.05% interest rate, this is a student loan of $26,000, total, for all 4 years. And remember, you have to pay this loan back with interest!
The Bottom Line
Lesson: The American dream can be reached with colleges that you can afford and don’t need to take out excessive, or even any, student loans. Don’t be enamored with the name of the school or that it was a real reach for you to get into, and therefore it is worth the amount you need to take out in loans to attend. This is dangerous, and often times devastating when the time comes for you to begin repaying those loans when it is too late.
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