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Student Loans Considered a Good Kind of Debt

[Nov 21, 2007.]

 

Analysts now say that student loans are considered a good type of debt. That's because a college education is classified as a worthwhile investment over the long haul. As a result, student loan debt is significantly different from credit card debt, which is considered a bad kind of debt, since the interest on credit card balances is not deductible and the goods you buy with your credit cards will depreciate over time.

The latest statistics indicate that a graduate from a four-year college or university typically earns more than 60% more than a worker with only a high school education. However, in order to pay for college, many students must obtain loans - loans which they can end up paying on for as long as 30 years.

Experts this fall say that students must realize that not all student loans are created equal. For instance, federally-backed student loans, also called Stafford loans, are characterized by fixed interest rates and flexible repayment opportunities.

In contrast, with private loans, interest rates vary, meaning that they can be more costly to students over the long term. Also, the repayment terms tend to be less lenient, meaning that college graduates may find it more difficult to repay such loans. Nevertheless, the private student loan industry has exploded over the past 10 years. In fact, nearly a third of all student loans are actually private loans, according to information obtained from the College Board.

The private student loan industry has apparently benefited from advertising. Such loans are routinely lauded on television and on the World Wide Web - the two places that students tend to get their information from. However, consumer advocates worry that students may end up with risky loans as a result of such marketing ploys. They say that students would be far better off sticking with federal loans rather than reaching for private loans.

Julie Ann Amos
November 21st 2007

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