Considering 'Good Debt' And How to Use It

Here are some tips for planning the investment of a lifetime: paying for higher education.

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With all the attention on the growing menace of educational debt, there is an irony to "investing" in higher education. Excitement turns bittersweet when faced with borrowing money to fulfill this dream.

Educational debt is often described as "good debt": Those with a college degree earn significantly more than high school graduates over a lifetime of work, making borrowing large amounts worthwhile. As we previously reported, the Project on Student Debt estimates the average debt for 2009 bachelor's recipients is $24,000. Students with advanced degrees carry an even heavier burden: Amounts can exceed $100,000 and take decades to repay.

[Read about getting a grad-degree job that pays.]

Graduates may be repaying educational loans over their entire lifetime. For those unable to pay, defaulting brings dire consequences and impediments to such basic necessities as finding a job and renting an apartment. Add to that the fact that the amount owed in student loans last year was even greater than credit card debt and will exceed $1 trillion this year, as recently reported by The New York Times, and the grim statistic that the unemployment rate in 2009 for young college graduates was 8.7 percent.

It is true educational debt can indeed be "good debt," but it is still debt. Plan your investment with your future in mind. Knowledge is power when financing your future.

First, consider the total amount you will need to borrow before you enroll in that expensive school 500 miles away. Then consider your expected salary. If you are planning a career with a starting salary of $35,000, amassing $100,000 in debt may not be wise. You may be able to obtain an equivalent education at a less expensive school.

If you are still determined to attend your dream school, seek sources of funding that don't require repayment. Exhaust avenues for grants, scholarships, and work study from schools and alternative sources like civic groups. If the numbers still don't add up, consider procuring enough in grants and scholarships to help you start at a less expensive community college and then transfer. (Just make sure your credits will transfer.) The effort you apply is well worth the freedom you'll have when you graduate with significantly less debt.

[Explore sources of unusual scholarships.]

Second, if you must borrow, borrow wisely.

Remember, there are federal relief programs offering reduced payments and forgiveness, including Income-Based Repayment and Public Service Loan Forgiveness. But you need to make decisions now as you are borrowing for school, not four years from now, to make sure you qualify for these programs. Federal relief programs only help with federal loans, so consider that before you take out a private loan.

[Think twice about taking out private student loans.]

Finally, plan how to spend your money. When living on borrowed funds, what you spend is not really what things will cost. You will pay interest on every dime you spend and what you buy today may cost twice as much to repay over time. If you have extra funds at the end of the year, think twice before you spend it and consider saving so you'll have to borrow less next year. This is not to say don't enjoy yourself— you are in college, after all. Just consider what will still be worth paying for in 35 years.

[Get tips and tools for managing student loans.]

Don't bail on your college dreams. The Associated Press reports 85 percent of students and recent college graduates say college is worth the time and money. The trick is to plan, plan and plan some more so you can say your educational debt truly was "good debt"—the investment of a lifetime.

UPDATE: We have previously written on this blog about the Public Service Loan Forgiveness program created by the College Cost Reduction and Access Act of 2007. On April 15, the Department of Education published a proposed Public Service Loan Forgiveness Employment Certification form, which may provide much needed certainty and an opportunity to track progress for countless people who intend to apply for loan forgiveness. There is a 60-day public comment period before any form will be finalized. We are reviewing and tracking this development and will keep you informed of its progress.

Radhika Singh Miller is a program manager for Educational Debt Relief and Outreach at Equal Justice Works. In 2008, she served on the Student Loans Team in the Negotiated Rulemaking for the College Cost Reduction and Access Act (CCRAA) and has extensive knowledge of this landmark educational debt relief legislation. Radhika graduated from Loyola Law School Los Angeles and was most recently a staff attorney at the Partnership for Civil Justice, focusing on constitutional and civil rights litigation and advocacy.