College Debt Now Exceeds Credit Card Debt: Why That Is A Good Thing

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It has been reported in many places that student loan debt now exceeds credit card debt. Last’s night, on the NBC Nightly New with Brian Williams, this fact was presented as evidence that college is to expensive and may not be worth the cost. While I am skeptical of any argument against the value of a college education, I would certainly concede that costs have been rising too fast. At the same time, I am actually encouraged to hear that student loan debt is higher than credit card debt. In comparison to consumer spending, college is an incredible value. It is an investment in yourself, not in your stuff. There is no doubt that people with a college education will always out-earn their peers who lack a degree. I have never shed a tear for doctors and lawyers who complain about their graduate school loans while enjoying the high salaries that their degrees command.

What Are The Trends

It is possible that the increase in education debt is just a function of increased school costs and increased college attendance. I can also hope that fewer people are getting into credit card debt, that their debts are smaller, and that more people are paying their credit cards off completely. This would be a sign of a much more responsible public. Credit card debt has such a disastrous effect on ones personal finances. It teaches people that it is OK to purchase things that you cannot afford. Once in that habit, it is extremely difficult to commit yourself to frugality and austerity in order to retire the debt. People just do not want to give up their lifestyle, no matter how unsustainable it is. Each month you pay interest on your credit card, and each month you continue to use your card, you continue to rack up interest charges. Ultimately, these payments represent money that you could have spent elsewhere, had you never carried a balance in the first place. That first time you failed to pay your balance, you took home more stuff  today while sacrificing a much higher degree of your future income.  It is like making a deal with the devil; only later do people find out how much they gave up.

Why College Debt Is Good

Ok, it is not exactly good. Everyone who is paying off a student loan wishes that they did not have to.  On the other hand, college is an investment in your future. Not only that, but interest on student loans is typically subsidized and tax deductible.  There are valid points to be made against spending too much on a degree that will not lead to much increased income. There are also powerful arguments against attending prestige schools with vastly inflated tuition costs. In many cases, less expensive public schools offer a comparable education at a fraction of the cost. Certainly, I have encountered few people who really care where I received my degree. Far more employers are just satisfied that I have a four year degree from a reputable institution.

The real issue are the college students who are actually trying to finance their school with credit cards. It is hard to imagine a worse way to do this. Nearly as bad is the practice of racking up credit card debt while in college. When the student graduates, the combination of student loans and credit card debt is simply killer. College students are typically trying to use a credit card and pay their own bills for the first time. In racking up debt, they begin a pattern of expecting to make purchases that they can’t always pay off immediately.

Conclusions

Debt only makes sense when it furthers your long term interests. Subsidized college loans with tax deductible interest clearly furthers your long term financial goals. Carrying a balance on your credit card does not. I am encouraged by the recent news that educational loans now exceed credit card debt. It is possible this is the result of some very positive trends.

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