There has always been a debate on whether or not a debt is GOOD or BAD. There are some obvious…Payday loans = BAD, House = GOOD. But what about student loan debt? Is it always a good debt? Or can it sometimes be a bad debt?
I recently had a conversation with a person that tried to convince me that her $70k student loan debt was a “GOOD” debt. Let me give you the facts and you decide…
She is a 38 year old mother of 2 who has been going to school full time for the last 3 years. Her husband is the sole breadwinner of the family. She is going to school to be a teacher. Teachers in our area have an average income of about $40k per year. On a personal note, her children are struggling in school but she wants to show them that anyone can succeed in school.
So what do you think? Was this a smart move on her part? I personally do not believe it was. For the fun of it, let’s run some hypothetical numbers…
4 years of income she lost (a modest $25k per year if she would have kept her previous job) $100,000 plus
Student Loan of $ 70,000.
By this calculation, she is starting off with a negative $170k before she even starts! Now, let’s assume she gets a job directly after she graduates at the age of 39. She will be making approximately $15k more per year then if she stayed at her previous job. If she devotes this entire $15k to paying of the loan and compensating for the debt she racked up during her 4 years loss of income (and don’t forget about interest); it will take her approximately 15 years to get herself back to even. She will then be 54 years old before she can start seeing a return on her investment.
Some say the best investment is in yourself and I totally agree with that statement but does this always mean a diploma hanging on your wall? So many people think that student loan debt is good debt; but is it always good debt?