Not All Student Debt Created Equal
Apr 13th, 2011 @ 1:02 PM by Amber Nelson
Student loans have generally been considered a “good” or “safe” debt, as they are an investment and allow the borrower to significantly increase income potential. In fact, the College Board reported last fall in 2008 the median income for those who earned a bachelor’s degree and had full-time work was $55,700. That is $21,900 more than the high school graduate median income. What’s more, the bachelor’s degree recipients were much less likely to be unemployed.
So there’s no reason to worry about rising student debt, with a likely total of more than $1 trillion this year, right? Or that student loan debt grew larger than credit card debt for the first time ever? Do we need to factor in the rising rate of student loan defaults?
Even though student loans are useful and can pay off in the long term, there are still risks and consequences of coming out school deeply in debt.
“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of FinAid.org and Fastweb.com, as quoted in a New York Times article Monday.
“…[p]eople… leaving school with a lot of debt, their choices may be very different than the generation before them,” said Lauren Asher, president of theInstitute for Student Access and Success. “Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be options for people who are paying off a lot of student debt.”
The current economy also make student debt a tougher burden, even though it is an investment that will generally provide a good return. It is harder for graduates to find good jobs right out of school to start paying off those loans. Defaults, especially among those who attended for-profit schools, are on the rise, creating credit nightmares for those students and graduates. The conclusion seems to be that not all student loan debt is “safe” debt; it has to be smart debt that can be reasonably managed after graduation.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.