Two Quick Thoughts On Student Loan Debt

Student loan debt now is over a trillion dollars and counting.  While I'm sure most students would have preferred to walk out of college not owing anything here's a few things to consider.  

This site says the average student loan is slightly over $26,000.  The other number I've seen is around $30,000.  Obviously students going on for graduate studies take on more debt.  Medical school debt for example can easily range in the hundreds of thousands, but that's the exception.   That's about the price of an average new car these days.  The car though is a depreciating asset.  In theory, the higher wages students can potentially earn with their college or graduate degrees should show a positive return on the investment spending from the debt incurred over the course of a student's career.

There are three kinds of debt in my book.  The first is stupid debt-borrowing money for example to go on vacation or buying things you don't need on credit cards and paying hefty interest charges because you can't afford to pay off each month what you've spent.  The second is debt of necessity.  This is debt you might take on because you have no choice.  An unexpected medical expense comes to mind or buying a car because you need it to get to work.  The third, and the best kind of debt, is investment spending debt.  This is debt you incur to buy something that shows a positive return on the money spent.  A farmer buying a piece of equipment that allows him to plant and harvest crops more efficiently is an example of this.  Student loan debt, because the student is investing in herself over the long course of a career is another.  Think of it this way.  If borrowing $30,000 means a student can earn say $2,000,000 more over the course of a 40 year career then the return on that debt is astronomical.  Go here to see a graph representation of this.

I know this won't make you feel any better as you write the monthly check on your loan but I hope the perspective helps.

Back early next week.