Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
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Are student loans good, or are student loans bad? Are they a big benefit, or do they just add up to one poor investment?
In reality, they can be both. Good student loan debt could deliver a college degree to help you climb the career ladder. Bad student loan debt can leave you ill-equipped for repayment, harming your finances for years to come.
To get a handle on the upsides and downsides of student loans and other debt, let’s review the following:
- Good debt vs. bad debt: the key difference
- When student loans are good debt — and when they’re bad
- How to make student loans into good debt
Let’s take a look at what the difference between bad and good debt is:
What is good debt, exactly? It’s about borrowing money for something that will appreciate or increase in value and make your loan worth the investment in time and money.
Mortgages: Home loans might be considered a “good” type of debt. Unlike a car, which loses value the moment you drive it off the lot, a house will (hopefully) increase in market value over time. If you sell it years down the line, you’ll (ideally) net enough of a profit to offset some of the principal and interest you’ve paid on the loan.
Small business loans: Entrepreneurs who borrow may also be staying on the good side of debt, since the money they put into paying for overhead, office space, equipment, employee training and salaries should pay off over time if their venture is a success.
Leslie Tayne, a debt resolution attorney at New York-based Tayne Law Group, described good debt as “a debt that you can easily maintain in your budget and debt that has given you a benefit.”
Basically, good debt will allow you to “be thankful for what debt has allowed you to have,” she told Student Loan Hero.
In a nutshell, bad debt is borrowing money to pay for something that diminishes or drops in value over time.
Auto loans: Not only does potentially high interest add to the total amount of principal borrowed, but the car you bought is usually a depreciating asset. In this case, buying a car via an auto loan might just be adding extra interest costs on top of the maintenance, insurance and gas that normally add to the ongoing price of the car.
Credit cards: This can be a good form of revolving debt but might become “bad” if you let your balance build up, making the interest unmanageable. Although some cards come with rewards and perks, they may or may not be worth it if you end up paying a bundle in interest.
Payday loans and cash advances: Other debt like these products often come with insanely high interest rates that can eat your budget up alive. Likewise, big-ticket purchases that need to be financed — like luxury items you don’t need — can be considered bad debt since they don’t appreciate in value.
“Debt is only bad when it becomes unmanageable, out of your budget and you can no longer pay it,” said Tayne. “It can also include debts that simply don’t make sense or debt you didn’t even intend to take on.”
In the good debt versus bad debt debate, student loans fall into a gray area. They can be considered good debt because the money you’re borrowing to attend school is your ticket to earning a degree and getting hired at a well-paying job. That debt should pay itself off over time with a lucrative career in place.
In fact, having a college degree significantly increases your income potential, as compared to peers with less education, according to Student Loan Hero research.
On the other hand, student loans can be bad because that degree does not guarantee employment. Student loan debt currently exceeds the $1.64 trillion mark, with more than 45 million borrowers faced with repaying their obligation, according to our student loan debt statistics.
Even though unemployment for college graduates has been historically low, it doesn’t always stay that way. The Great Recession in 2008 and the coronavirus pandemic erupting in 2020 both worsened the job market for new and recent grads. Even those ex-students who find work more easily than their peers may not earn the kind of salary that makes repaying student debt easy.
In fact, student loans may be the hardest type of debt to narrow down to simply “good” or “bad,” since everyone’s financial and lending needs may differ. Instead, let’s consider both the benefits and drawbacks to student loans.
Is student loan debt good? Yes, when …
- Student loans allow you to pursue a college education without having to pay for your entire tuition in full. With a college degree, you improve your chances of finding well-paying, stable employment.
- Some federal loans are subsidized. If you qualify, you’ll have your interest paid during select periods of time.
- Interest rates on federal loans are currently lower than most other lending products, and the interest is tax-deductible.
- Federal student loans come with a variety of repayment plans (standard, graduated, extended, income-driven, etc.) that can make your loan payments easier to align with your budget.
- You have opportunities to refinance your student loans if you’re struggling with debt — and with federal loans, you have additional options, including mandatory forbearance and various loan forgiveness programs.
- With timely, disciplined payments, student loans can add positively to your credit history and score.
Is student loan debt bad? Yes, when …
- Even though a college education improves your career chances, you still might find yourself unemployed after graduation.
- Entry-level workers fresh out of college also may not earn enough to comfortably afford their loan repayments. Plus, the high amount of debt compared to a lower salary can produce a skewed debt-to-income ratio, which can hurt your credit.
- Unaffordable student loan debt can lead to delinquency and even default, which can ruin your credit score and prevent you from getting approved for other types of credit.
- Student loans have been historically difficult to discharge in bankruptcy, requiring you to prove that paying off the debt would cause you undue hardship.
The most certain way to make student loans into good debt is by having enough money on hand to pay down the majority of your interest before it accrues — but if that were the case, there wouldn’t be much of a reason to take out a loan in the first place.
A look at the above pros and cons may leave you wondering: Should I get student loans? From a financial standpoint, it’s often a necessary evil for students who don’t have the luxury of grants and scholarships, family money or other sources of money for college.
Borrowing money for student loans may be unavoidable, but by managing your debt carefully, you can shift it from bad to good.
Andrew Pentis and Laura Gariepy contributed to this report.
Interested in refinancing student loans?Here are the top 9 lenders of 2021!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.15%1||Undergrad & Graduate|
|1.99% – 5.64%2||Undergrad & Graduate|
|2.50% – 6.85%3||Undergrad & Graduate|
|1.90% – 5.25%4||Undergrad & Graduate|
|2.25% – 6.64%5||Undergrad & Graduate|
|1.89% – 5.90%6||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|2.15% – 4.42%7||Undergrad & Graduate|
|2.00% – 5.63%8||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews! |
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2021.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application..
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 04/07/2021 student loan refinancing rates range from 1.90% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
5 Important Disclosures for SoFi.
6 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of April 29, 2021. Information and rates are subject to change without notice.
7 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.89%-4.78% APR and Variable Rates range from 2.15%-4.42% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
8 Important Disclosures for Nelnet.
Checking your rate results in a soft credit pull, which will not affect your credit score. If you continue with your application, Nelnet Bank will request your permission to obtain your full credit report from one or more consumer reporting agencies. This is a hard credit pull and may affect your credit score.
Interest rate reduction of .25% for automatically withdrawn payments from any designated bank account (“auto debit discount”). Auto debit discount applies when full payments (including both principal and interest) are automatically drafted from a bank account. The auto debit discount will continue to apply during periods of approved forbearance or deferment if the auto debit discount was in effect at the time of receiving the forbearance or deferment. Auto debit discount will remain on the account unless (1) the automatic deduction of payments is canceled or (2) there are three consecutive automatic deductions returned for insufficient funds at any time during the term of the loan.
Request for the cosigner to be released can be made by the borrower after 24 consecutive, on-time payments (not later than 15 days after the due date) of principal and interest have been made. Borrowers in deferment or forbearance must make 24 consecutive, on-time payments after re-entering repayment to qualify for the release. The borrower must be current on their payments at the time of the cosigner release request and show the ability to assume full responsibility of the loan(s) by meeting certain credit criteria on their own at the time of the request, including, but not limited to, being a U.S. citizen or having permanent residency in the United States, being the age of majority in their permanent state of residency, providing sufficient proof of income, and having no student loans in default.
Hardship forbearance allows you to temporarily suspend payments on your loan(s) while you are experiencing financial hardship. It is offered in increments of two or three months, with a maximum of 12 months available, in aggregate, over the life of the loan. If your loan(s) are in good standing at the time of your request, you will be eligible for forbearance in increments of two monthly payments. If, at the time of your initial request, your loan(s) are considered past-due, you will be eligible for forbearance in increments of three monthly payments. Future increments of forbearance, up to a life-time maximum of 12 months, may be requested upon the completion of making a certain number of principal and interest payments. During the two- or three-month forbearance period, you will not be required to make payments; however, any unpaid interest will continue to accrue and will be capitalized (added) onto your principal balance at the end of the forbearance period. You may continue making payments in any amount without penalty during the forbearance period. Your loan repayment term will be extended by the number of months in the forbearance period.
Refinance Loan Eligibility: You must be a U.S. citizen or permanent resident alien with a valid U.S. Social Security number, and be the legal age to enter into binding contracts in your permanent state/territory of residency, or be at least 17 years of age and apply with a cosigner who is at least the age of majority in their state/territory. Non-residents can apply with an eligible cosigner who is a U.S. citizen or permanent resident alien with a valid U.S. Social Security number. The student loans you refinance must be in their grace or repayment period, and you can no longer be enrolled in school on a half-time or more basis. You must have at least $5,000 in student loans to refinance. You, or your eligible cosigner, must have an annual income of at least $36,000. Approval subject to credit review. Other credit criteria may apply.
Refinance Loan Limits:
Loan Refinancing Risks: Federal student loans include benefits that may not be offered with private student loans. Carefully review any potential benefits that may be lost by refinancing federal and private education loans, such as the loss of any remaining grace periods. To learn more about what to take into consideration when refinancing federal student loans with private education loans, click here
Selecting ‘Get Started’ results in a soft credit pull, which will not affect your credit score. If you continue with your application, Nelnet Bank will request your permission to obtain your full credit report from one or more consumer reporting agencies. This is a hard credit pull and may affect your credit score.
Fixed interest rates range from 2.99% APR (with auto debit discount) to 6.25% APR (without auto debit discount). Your interest rate will depend on your (and if applicable, your cosigner’s) credit qualifications. The fixed interest rate will remain the same for the life of the loan.
Variable interest rates range from 2.00% APR (with auto debit discount) to 5.63% APR (without auto debit discount). Your interest rate will depend on your (and if applicable, your cosigner’s) credit qualifications. Variable rates may increase after consummation. The variable interest rate is equal to the One-Month London Interbank Offered Rate (“One-Month LIBOR”) plus a margin. The One-Month LIBOR in effect for each monthly period (from the first day of the month through and including the last day of the same month) will be the highest One-Month LIBOR published in The Wall Street Journal “Money Rates” table on the twenty-fifth (25th) day (or if such day is not a business day, the next business day thereafter) of the month immediately preceding such calendar month. The Annual Percentage Rate (APR) for a variable interest rate loan will change monthly on the first day of each month if the One-Month LIBOR index changes. This may result in higher monthly payments. The current One-Month LIBOR index is 0.15% as of 5/4/2021.
The lowest interest rate for each loan type requires automatically withdrawn (“auto debit”) payments, a five-year repayment term, and the borrower making immediate principal and interest payments. Not all borrowers will receive the lowest rate. The interest rate and Annual Percentage Rate (APR) may be higher depending upon (1) the credit history of the borrower and, if applicable, the cosigner, (2) the repayment option and loan term selected, (3) the loan type selected, and (4) the highest level of education attained. If approved, applicants will be notified of the rate qualified for within the stated range.
*Checking your rate results in a soft credit pull, which will not affect your credit score. If you continue with your application, Nelnet Bank will request your permission to obtain your full credit report from one or more consumer reporting agencies. This is a hard credit pull and may affect your credit score. **Your actual savings may vary based on interest rates, outstanding balances, remaining repayment terms, and other factors.