It has something to do with debt's cause--a small business loan (at 4-8%) is surely nobler than that a vacation to Key West expensed to your credit card (at a variable interest rate north of 19%). It also has to do with debt's intentions. Money-lenders are in business to lend you money, plain and simple, regardless of your best (or worst) judgment about how to spend and repay that money. Student loans are the ultimate in good debt, at least historically. Your blue ribbon diploma should indicate, or so the lender believes, that you're going to be a productive, educated wage earner who pays down the principal. That's a good, economically supporting role to play, all things considered, because the promise of prosperity leaves you free to wrap yourself in other kinds of debt--good and bad--over the course of your life: home mortgage, credit cards, and then loans for your own children to attend college. Student Loan Debt and the Diminishing Retirement Dream If you're 20 years out of college, though, the underlying assumption that you'll play this supporting role is not as true as it once was--particularly if you're struggling to pay your student loans. Student loan delinquency rates are up 50% since 2005, according to FICO Labs, and two-thirds of national student debt is owed by adults under the age of 40. Saddled with hundreds of dollars of student loan payments per month, Gen X- and Y-ers and Millennials do not fit the model of so-called productive wage earners--particularly if they can't free up capital for a down payment on a home or gain access to credit.
Last year, IRI concluded a comprehensive study of the retirement attitudes of Generation X-ers and found that two-thirds were nonplussed about their retirement prospects. IRI's "Retirement Readiness of Generation X" notes that the recession has prompted 15% of Gen X-ers to withdraw from their 401(k) plans and 23% to stop contributing to their retirement accounts altogether. Those diverted funds, says Weatherford, map onto the difficulty claimed by Gen X-ers in paying for essentials such as food, gasoline and medicine.
Have student loans left the "good debt" category forever? Sure, they have a lower interest rate than, say, a credit card. But, most people will be indebted for a much longer time than they would with a credit card. And, sure, if your debt is held by the government, you can have the remaining balance forgiven if you've been a public school teacher or worked for a qualifying non-profit for a period of time. But most people fall outside of that narrow path. Perhaps a third category is in order for student debt. Neither good, nor bad, student debt is like that formerly awesome tattoo you got, well, in college.