If I asked you what you got out of college, what would you say?
I don’t like saying any answer is wrong, but if you say “student loans,” I might be tempted to go there.
When you attach the negative emotions that come with focusing on thousands — or tens or hundreds of thousands — of debt to a college education, it’s easy to label student loan debt as bad.
But, believe it or not, not all debt is bad, and many financial experts call student debt good. It all comes down to what you get out of it.
Debt is considered good when what you get out of it (the return) is higher in value than what you put in it (the cost). In fact, before you make any investment, it’s a good idea to look very closely to make sure any debt you take on will most likely result in a higher return.
For example, when you borrow money to buy a house, the debt you take on (the cost) allows you to own your home. What do you get from your home? You get a place of your own that you can customize to your preferences.
Houses tend to gain value over time, meaning as long as you keep it in working order, it’ll be worth enough later that you can make a profit from selling it. Because that debt has the potential to earn you money, the return will be greater than the cost, making it good debt.
The same idea can be applied to student loans.
In a basic sense, a college degree allows you to make more money in your lifetime than if you went into the workforce directly after high school.
The reality is that you get more out of a college experience than a degree. That just adds to the value, but only if you choose to see it that way.
In this article, we’re going to outline many ways a college education may have a greater reward than you may have considered.
Academic Rewards
To earn your degree, you had to pass your classes. From those classes, you got various academic rewards.
When it comes to the academic rewards of a college education, there are two classes of thought. Some people think college should be for intellectual and personal growth, while others believe it should be for learning job-related skills and information.
Intellectual and personal growth includes soft skills like:
Job-related skills include hard skills that make up the primary function of the job you’re going into.
While Americans with no college education believe college should teach specific job-related skills to better prepare students for the workforce, those with higher education (especially more than a bachelor’s degree) will argue about the merits of intellectual and personal growth.
However, college graduates tend to say their college experience positively impacted their personal and professional development, according to PEW Research:
Social Benefits
For many, the greatest memories from college are with roommates, friends, or classmates. Believe it or not, those social experiences taught you things you might have learned differently if you had not gone to college.
Though some people may complain about their college roommates long after they moved out, others may have formed bonds that will last a lifetime. Either way, those social interactions provide valuable lessons on interacting with a variety of people in a variety of situations—all while you have school and deadlines to work toward.
For example, you may have learned how to let the little things go or how important it is to communicate your needs. Or, you may have learned how to lead your peers to foster a constructive working environment. Maybe you learned to juggle multiple projects and personal drama. Those are all valuable skills in any work or home environment.
Independence
Do you cook? Do you fold your clothes as you take them out of the dryer or only when you’re ready to cart the next load of dirties to the washing machine? Where did you get those habits? We wouldn’t be surprised if you said college.
Perhaps one of the most anticipated aspects of college is getting out of your parent’s house. Gaining that independence can be freeing. Or it can be terrifying.
You suddenly have to cook your own meals, do your own laundry, and clean your living space yourself. You have to buy your own groceries, clothes, and entertainment. You have to budget and base spending decisions on whether you’ll have enough money to pay rent and other bills. You have to schedule your own appointments.
Those are skills essential for life after college, and let’s face it, you don’t really learn them until you are forced to do all of them on your own without your parent’s help. And thanks to your student loans, you may not have had to worry about earning the money that allowed you to live on your own — you were free to focus on learning those independence skills.
Employment
The truth is that most people go to college to get a good job, or at least a better job than they could have gotten with only a high school diploma. But what constitutes a better job? One that is high paying? Has the best benefits? Is deeply satisfying or interesting? That’s something only you can answer.
Job Opportunities
In the most basic sense, simply having a degree will broaden your employment opportunities. In fact, about two-thirds of jobs these days require a college degree. And, according to PEW research, “one-third of Americans without a bachelor’s degree have elected to not apply for a job they felt they were qualified for because it required a four-year degree.”
It’s like buying an all-access pass at a theme park. You can get by if you choose to get the basic pass, but you have more options if you spend the money for the all-access pass.
Additionally, getting back to the point, you’ll have options within those options. Because a college education has a range of academic rewards, you will have access to a greater range of careers than you might have considered at first. Have you ever noticed a list of degrees in job posting requirements? Any of those options would work for the company. It’s not a one-to-one correlation between degrees and jobs.
Remember those social benefits from before? Well, they’re back. They say the best way to get a job is by networking. In fact, about 85% of jobs come from networking instead of job boards.
A college campus is one of the best places to start building that network. In fact, anytime you made friends, got a new roommate, or got to know group project members, you were networking. You can use those contacts in your job search. You never know; one of them may be looking to hire someone like you, or they may have landed a position at your dream company and can get you in the door.
Compensation Potential
With greater employment opportunities comes greater compensation potential. In investing terms, this part is key for many people in determining the worth of the college experience. If you can earn enough money because of the degree to pay for the degree and more, then the return is monetarily greater than the cost. Therefore, it’s worth the investment.
College Board’s 2016 Education Pays report shows that workers with a bachelor’s degree earn an average of 67% more than those with just a college degree. Furthermore, they are far less likely to be unemployed.
In any compensation package, benefits are just as important as wages. Studies have shown that college graduates are more likely to have health insurance and a retirement plan through their employer than people who have only a high school diploma. Additionally, college graduates with advanced degrees are more likely to contribute to a retirement plan than those with a bachelor’s degree.
The Keys to a Good Life
Some say a college education is the way to achieve the American Dream. While others argue the American Dream is dead, you can always strive for health and happiness. And having a college education may help you get there. College graduates are less likely to smoke, more likely to exercise, and less likely to be obese when compared to people who only have a high school diploma.
Whether you find happiness from healthy habits, feeling financially secure, or feeling challenged at work, think of your degree as a means of happiness. According to a Rasmussen report, 51% of workers age 30–45 with a bachelor’s degree or higher are satisfied with their work. Compare that to 47% with a high school diploma and 42% with less than a high school diploma.
In the end, a college education is meant to benefit you throughout your life and career. It’s supposed to get you ahead, not only in earnings but in opportunities. How much you value it is up to you, but you should be able to agree that you would likely not be where you are today if not for your student loan debt.
But... The Amount Of Loans You Take Out Matters
You know the reasons why college can be good - but student loans? Well, if you don't have the money to pay for college, you sadly need to get student loans. They should be a last resort (see our full guide on the Order of Operations to Pay For College).
It also should be after you've considered alternatives - like going to community college and transferring to a 4-year state school, living at home, and more.
But if you do need to borrow to pay for school - that can still be okay... as long as you pay attention to ROI (Return on Investment). Remember, the value of going to college only makes sense if you increase your lifetime income. But what if you borrow too much and your income doesn't increase? Then it's not a good deal. Simple as that.
The real question becomes - what is too much student loan debt to stop making it "good debt" and move it to "bad debt"?
A simple rule of thumb is "never borrow more in total than you expect to earn in your first year after graduation". By practicing this, you keep your potential student loan debt at a level that can be managed when you start working.
For example, if you want to be a teacher, you can do a quick search and find out that the medians starting salary is $39,000. So, if you want to be a teacher, don't borrow more than that - for ALL of your college costs. That means $9,750 per year for 4 years.
That sounds challenging - and it could be. But if you go back to the order of operations to pay for college, and explore alternatives (like community college to a state school), it works.
If you want to go into computer engineering, the average starting salary for an entry level computer engineer is almost $70,000. As such, you can borrow up to that for all your school, and still likely see a positive ROI after graduation.
The hard part is when people take out well-beyond the average student loan debt.
When Student Loan Debt Is Bad
We can't just talk about when student loan debt is good - it can be bad if you don't follow the ROI rule.
If you borrow too much - student loan debt is bad.
So, how much do lifetime earnings improve by going to college? Here's the stats from the Social Security Administration.
Male: Men with college degrees earn $900,000 more over their lifetime than high school graduates.
Female: Women with college degrees earn $630,000 more over their lifetime than high school graduates.
With that in mind, if you start borrowing $100,000 or $200,000 - as your loan grows and you pay interest, you see your ROI significantly decline - or even eliminated for some.
Basically, borrowing more than $50,000 in student loans is pretty much always bad for an undergraduate degree. You can borrow more for advanced degrees - such as medical school - but even then, focus on return on investment (ROI).
This is just the math as well - you have life considerations to make. Would you have been happier, healthier, etc. if you pursued a career that didn't require a college degree, even knowing you may earn less?
So, yes, student loan debt can be good. But that doesn't mean it's always good.
If you have student loan debt, do you see the benefits of it? If so, what are they?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.