There are very few students who can afford to obtain a tertiary education without the assistance of a scholarship or student loan.

Student loans are specifically designed to finance tuition, textbooks and general living expenses.

Why are student loans be classified as ‘good debt’?

To understand this, it is first important to understand what good debt is defined as. Debt is classified as being good when the return is higher than the value that is invested. For example, you would not invest if there is no positive return on the money invested.

Because of the individual benefits from the knowledge and skills obtained from the qualification, student loan debt is considered good debt. Most people say that student loan debt should be avoided at all costs, but this does not have to be the case.

Learn to use student loan debt to your advantage and you can with these five reasons why student loan debt is good debt.

#1) The gift of knowledge

Many believe that a price cannot be placed on knowledge. While tertiary education is not cheap, the value of the knowledge and skills you are taught while there outweighs the cost paid to obtain the knowledge.

The best part is that this newfound knowledge can be used to access new job opportunities which, in turn, translates to a good income. Almost two-thirds of jobs require employees to have some form of tertiary education so a student loan can help you get a head start you need.

Not to mention all the new and exciting people you will meet that will form part of your network – these people can also help you find a job!

#2) Prove your creditworthiness

One of the factors that most fresh graduates have to deal with is the lack of a credit record. However, if you are paying off student loan debt, you have already established yourself with a credit history.

So long as you have been meeting all of your payments, and doing so on time, creditors should have no problem with considering you for loan applications, store cards, credit cards, and the likes.

Simply by meeting your repayments promptly, you can show creditors and lenders that you can be trusted to make repayments and they will be more likely to trust you when deciding to lend to you.

Establishing a credit record is not easy so student loan debt is a great way to get a head start on that.

#3) Raking in the big numbers

As explained earlier, a greater skillset and expert knowledge opens up doors to better employment opportunities. And a better job translates to higher earning potential. Research indicates that current employees with a bachelor’s degree are earning approximately 67% more than those with only college degrees.

Student loan debt only becomes a problem if the graduate is unable to afford the repayments on the salary, they are receiving from the employment they studied to become a part of. However, if the money earned because of the degree can comfortably repay the amount spent on the degree then it was worth it.

A higher salary is not the only benefit that graduates can expect; there is more to compensation than money alone. Studies have found that employers whose employees have tertiary education are more likely to receive health insurance and retirement plans.

#4) Tax deduction benefits

Something that not many graduates are aware of is that the interest paid on student loans tax-deductible. This means that it can be reduced from your income, thus, lessening the tax burden you will face for the coming year.

While the tax deduction amount is capped, it can still prove to be very useful. If you are just starting in a new job with a new place and an array of expenses that need to be made, then a minor tax deduction can be a great help.

However, the amount that you get back from tax deduction is not always worth it depending on the amount of interest that is being paid monthly. Sometimes it is best to just repay the loan to avoid any future problems with large amounts of debt.

#5) Loan flexibility you will love

Student loans are among the more flexible and adaptive loan options available. This means that the can be altered to suit the borrower’s preferences.

Most loans do not need to be repaid until the student has graduated. And, even then, repayments will only begin six months after the student has graduated to give them time to find employment.

The amount that needs to be spent on monthly repayments is also calculated per the amount of money the new graduate is earning in their new position. This ensures that the individual can afford the repayments without having affected their ability to survive.

In most cases, individuals can also apply for forbearance on the loan should a financial hardship occur. This means that the individual will not have to make repayments for an agreed-upon time and their credit score will also remain unaffected.

Things to be aware of

Student loans are ideal for making a step in the right direction; you get the education you need to start your career. However, debt remains debt regardless of student loans being classified as ‘good debt’ or not.

This is why it is important to be aware of some of the negatives of student loans just so that you know exactly what should be avoided.

  • Putting a few things on hold - student loans are not cheap, and you can look forward to repaying this debt for at least a decade depending on what your future salary looks like. The problem with this is that you might have to put a few life goals on hold such as travelling, getting married or buying your first home. When you already have a large amount of debt, creditors are not always willing to allow you to take on more – unless you have the salary to support it.
  • Large impact on your credit score - while a student loan can have a positive effect on your credit score, it can just as easily cause matters to head south. If you are unable to meet your repayments or make constantly late repayments, then you can expect to cause a large amount of damage to your credit score. Missing payments will not only affect your credit score, but it will also result in higher amounts of interest accruing which can create an unbeatable debt monster.

Student loans are not all doom and gloom. After all, if they were that bad then no one would be making use of them! Just remember the reasons why student loans are good debt and make sure to stick to the plan. A good education is only a single student loan away!