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The admissions season is upon us and as students go up to their master's stage, many take education loans from different institutes to pursue their education. A statistic shows that over the past 10 years the number of students taking student loans has increased significantly. In America, people under the age of 32 have a total of a combined 620$ in student loans as of mid-2019. On the other hand, an average American earns about $65K before tax per year with a bachelor’s degree, and with a master’s degree, they earn about $75K again before tax according to the National Association of Colleges and Employers.
This is where the major problem lies. Over the years it’s been observed that students take more loans as compared to the earnings that they might receive post-graduation. That is they pay more on their degrees compared to what they make as salary using the degree. This makes the loan bad debt.
Before we move on let's see what is bad debt. A debt is considered bad if it’s taken for an object or entity whose value keeps on decreasing or diminishes over time. So why is this student loan bad? Research conducted stated that education or degree doesn’t guarantee a job, so even though a student pays thousands of dollars over a degree there is still a very high possibility they won't be able to land a job that is secure enough to cover up the loan and their day to day living expenses. The situation gets worse in times such as a pandemic where many people lose their jobs and businesses get shut down.
On the other hand student loans aren't always bad debt. According to Student Loan Hero research data, student loans usually go towards the education and degree which increases the chances of an individual landing a job that has a higher pay as compared to their other peers with a lower degree. At the same time taking loans from government institutes over private institutions is the best method to avoid higher interest rates. Americans of all age groups have a debt of about $1.56 trillion in just student loans and this comprises 45 million money borrowers. And this debt is $521 billion more than the total credit card debt that the citizens owe in the USA.
At the end of the day, a student loan is a good or bad debt that depends on an individual. Individuals are more likely to make the most out of the loans if they follow a systematic plan about where to spend the money, how much, and how fast to repay the loan. With a plan, the loan directly reflects positively on the credit score of the students and helps them in the future.
So in the discussion, whether student loans are good or bad debt falls in the gray area and depends completely from individual to individual on how they make use of their student loans.
This article has been written by Ritika Pandey for The Paradigm.
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