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Student loans are good debt

A defining characteristic of millennials are our student loans. With an average of around $20K per student, including some professional degree holders carrying as much as $100K of loans, it may feel like modern indentured servitude. To make matters worse, student loans are a special type of debt that haunt us forever. Despite the financial burdens, there are some major benefits to student loans.

The first obvious benefit is that higher quality education translates to higher incomes, in fact over $1mn more lifetime earnings for a 4-year degree. In this context, it is wise to invest $100K to earn 10x back. Generally, the benefits of debt decrease with professional degrees, but they are still worth it.

Another way to make a return on student loans is to invest it. When I realized that I didn’t need the entire recommended student loan package offered by my university, but the interest rates were below historic average S&P500 returns, I nonetheless took the full loan and invested it because long term, I expected to profit from a few percentage points of arbitrage. This is perfectly legal.

Furthermore, interest payments are deductible (though it phases out if your income is too high), which means your real interest rate is lower. Throw on automatic loan repayment programs and loan consolidation and you save even more.

Of course, not all cases of student loan debt are good. I served in the military and saw first hand some of the degree mill for profit school practices and I sympathize with those situations because the promise of large income increases may not happen for everyone (same is true for some fields of study too).

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