The majority of college grads leave the halls of learning in debt. It’s the norm and the price of admission but all student loans are not built alike. Whether or not the debt is ‘good’ debt—an investment in you and your future—has a lot to do with what kind of debt you take on. To boil it down to a basic rule: Stick with public, avoid private.
Public, federal student loans are a whole debt category in and of themselves and for the most part, this is good debt. Fed loans have lower fixed interest rates and flexibility when it comes to repayment. For example, after undergrad, your federal loans won’t hit you with a bill until four to six months after graduation, hopefully giving you time to land some income.
Should you not find a job or not make enough money to afford the minimum payments on your
loans, you have several options to repay including extended repayment, graduated repayment, deferment, forbearance and income-based plans. Head to FinAid.org for more information on how each of these repayments plans work. Keep in mind, though, that any loan modification that changes the ‘life’ of the loan (say, from a 12 year loan to 30 years) means you pay more, sometimes much more, in interest. And any plan that is income-based means access to information on your pay.
When it comes to private student loans, two words should stick in your head: credit cards. Private loans act like credit card debt. You have little say in your terms, the bill is due no matter what your financial situation and interest rates are higher than federal loans, sometimes much higher. And remember, student loan debt is never dischargeable, even in bankruptcy. Loans get a bad rap, but all debt is not bad. So to make student loan debt the good debt that it can be, make sure you borrow smart.