Is There Such a Thing As Good Debt?

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I remember one day in my first year economics class at NYU, my professor was talking about deciding to purchase something based on individual preferences and perceptions. He used the example of paying for college, explaining that in most cases it is a good decision to incur the debt of paying for college because it will increase the value of your skills, therefore increasing your prospective income. The future value of that college education would be greater than the debt you would incur in the present – meaning that you could pay off the debt quite easily. He added on to the end, “and NYU students have an advantage because they often have much higher salaries than most.” He described this kind of debt as “good debt,” – an investment.

I loved this. I loved that it justified my decision to take out a giant student loan to go to NYU and live in the big city. I loved that it calmed my anxieties about incurring such a large debt at the young age of 18. But, I kept thinking of how I could have bought a quaint house with the same loan I took out for college, and wondered if it was really the right decision.

What I have learned from reading Rich Dad, Poor Dad, my research and my discussions with my financial guru friends is that a college education isn’t necessarily “good debt.” This concept relies on making an investment that will have high returns in the future – increasing your value and wealth. However, this is an incomplete definition.

The investment should provide you with tools to increase your passive income. The way my professor explained it, you would still be working for a monthly salary, not gaining passive income that would increase your financial stability. Therefore, that debt would still be a liability instead of becoming an asset. Monthly income is not considered an asset.

Now, I am not saying that you shouldn’t go to college. The education you receive can be vital and extremely valuable. But I highly suggest organizing your goals for your career and researching your desired career. How much, on average, will you make? How quickly can you work your way up a pay scale? How quickly would you like to pay off your debt? What kind of payment plan will that require? Does that work with your monthly salary?

The value of your college education should be weighed with your intended career choice. And instead of working to pay off your education, find ways that you can make your college education work for you. Find means of creating a passive income with your talents and strengths. Then, you can pursue your desired career without selling your soul for healthcare or a monthly salary. You can be more selective in which jobs you pursue and have more control over where your career goes.

So, if you decide to go to college, do not simply accept that it is a “good debt.” If you do not educate yourself about your personal finances and find ways to apply your education to build your passive income and financial stability, it is NOT a good debt. It will only remain a liability that influences your choices, both in life and your career.

Why don’t they teach this in college?

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