When we hear the word debt, of course it is natural to immediately jump to some negative conclusions. While this can most certainly at times be the truth – there are other times when debt can actually be a good thing.
Now I don’t blame you if you think this sounds a bit crazy – however, the type of debt I am referring to here is that of student debt variety. It is of course important to realize that any debt left too long can turn into bad debt, however in the beginning, student debt can be a good thing and can even help be a vehicle that can get you off on the right foot when it comes to your life as a future borrower.
The Upside of Student Debt
To start things off, it is important to note that in order for student loans to play a positive role in your life (aside from helping you earn your education) – you also need to be sure to understand that there are risks if this loan is not managed responsibly. With that being said, if they are diligently and effectively managed by the borrower, then this type of debt can be a good debt, instead of a bad one.
As mentioned, student loans can have long term benefits when they are used to help you improve and set up for your financial future. Since education is typically viewed as an investment in your future then this can prove to be a valuable resource that can help you earn more in the future, as a result of having a your degree plus your experience.
While the job market may be extremely competitive, it is still true that employers look for candidates that possess all of the appropriate certificates, designations and degrees that qualify them for various career positions. So from this perspective, having student debt can definitely be considered a good form of debt as you have taken the necessary steps to earn your education and qualifications.
Having student debt can also be a good jumping off point for beginning to take out loans and mortgages as you become ready for these milestones. If managed properly and you have been able to continue to pay off your student loan – even if you currently are carrying a remaining portion of this debt, any future loan provider will want to see a credit history that reflect your experience with borrowing and with repayment too.
With a relatively healthy track record of borrowing and repaying illustrated by your credit history, when you apply for future loans, a mortgage, and even a new credit card – this will highlight you as a potentially sound borrower. So not only can having a student loan help sculpt you as a future borrower, it is often the first step towards building your credit history.
Ultimately, having student debt can bring around some positive aspects for you – again if you are able to keep up with the demands and the payments, then having some student debt can actually prove to be well worth it.
The Downside of Student Debt:
Now onto the bad. Like all loans, debt can quickly add up. Unlike a home loan, which holds your home itself at collateral, should you not be able to make these payments- with a student loan however, it is your future earnings that are the actual collateral. Any future earnings you make will be used to pay off your student loan and this can definitely be difficult and can lead to a future with even more debt.
Also, what happens when you can’t get into the career you want ? Or it takes several more years to get hired in your designated profession – or a career in any field for that matter? This then can mean you will go for a prolonged time without being able to pay off much of this debt and the unfortunate reality is that it will be sticking around even longer than expected.
With that being said, while there are programs that do allow borrowers to put their loan payments on hold until they begin earning – this in and of itself can cause issues because this ultimately means you are still carrying around debt. All in all when you do start earning an income and can replay the loans, this can mean that you will still have a lot of this loan left to pay, as well as probably many others to deal with.
As you probably already know, with a lot of debt it is also likely that a poor credit score will follow. As you accumulate more and more debt, it may be harder to pay off. Furthermore, in the event you try to go and take out more credit – you are more likely to be seen as a risk that many lenders do not feel they can take a chance on. In the end, if paying back your student loan proves to be too much of a challenge for you, and the debt continues to sit and then to grow – this can have many negative ramifications for your future – and can definitely fall into the column of ‘bad’ debt.
As you can see, there are two completely opposite realities that having student loan debt can mean for you. With these two conflicting directions potentially at your feet – probably the key piece of information to be taken into account here is that student loan can be both good and bad. Also fundamental in whether student loan debt can work for you – or against you, relates to the handling of the loan itself.
Much like all loans, if you have a proven track record of being able to repay this loan – this can open up many doors for you and can improve the future of your finances, one positive credit score point at a time – just make sure you weigh the risks and the benefits in equal measure.
