By David Francis
Apr 27, 2012
[Related: Is A College Degree Worth It?]
Prior to the Great Recession, many financial experts differentiated between "good" debt and "bad" debt. The former included loans with low interest rates, such as a home loan. Because the value of a home presumably appreciated over time, the debt helped the borrower work toward building wealth. "Bad" debt included credit card loans, or loans taken out to pay for things that current cash reserves couldn't cover. The value of the product purchased with the credit card immediately depreciates upon purchase, while the money placed on the credit card immediately begins to accrue interest.
[Related: How to Use the IRS as a Credit Card]
Ebrahimi says the growing student loan burden and the poor state of the economy, especially for young people, means students must approach student loans differently. They are often necessary, but one needs to be strategic in how they are used. He warns against using loans at for-profit universities, which promise much but often fail to deliver jobs that allow students to pay off their loans.