Student loan debt can be an opportunity

Last year, when the U.S. Supreme Court struck down President Joe Biden’s plan to relieve a portion of student loan debt for individual students, it put many students and their families into a state of limbo, uncertain about what they would now be required to do.

But there can be a more productive way for them to look at this situation.

Put simply, this is an opportunity for recent college graduates to begin their road to financial freedom. By starting to repay the loans they agreed to pay when they first entered college, they can develop a path to help them reach their financial goals.

Loans are not meant to punish recent graduates, and it is understandable that many of them are just starting out without a large amount of disposable income. The average student loan debt in Connecticut is more than $35,000. That’s a serious number.

That is why this is an ideal time to do what most people ultimately do in their lives — examine their debt and create a plan to manage it.

In life, there is good debt and bad debt. Credit card bills are the latter kind, as there is no growth potential or opportunity to make an investment in yourself. Conversely, mortgage debt — where the investment is in an asset that will usually gain value over time — is an example of good debt.

I would argue that student loans are also a form of good debt, a down payment on a young person’s future. A student who goes to college, gains a vital education and learns how to live independently will exit the school much better prepared to start a career and boost lifetime earning potential. That’s a positive thing.

After all, the chances of all college debt being wiped out by executive order, or even by new congressional law, were always fairly slim in the first place. The intent didn’t seem to be to expunge all college debt, but to offer some relief and a take away of percentage of the total amount due.

In time, that may still happen. President Biden continues to create modified plans for debt relief, including the most recent forgiveness of $1.2 billion in loans for more than 100,000 students through his Saving on a Valuable Education (SAVE) plan.

But rather than wait in a state of abeyance, why not get started on repaying the loan now? If wide-scale relief eventually comes through, it can likely be applied later. Right now, there is an opportunity for recent graduates to get a head start on getting their finances in order.

So how does one do that on a limited budget? As with all things in finance, those who are willing to try can usually find a way.

First, there is basic budgeting, with young people dividing their expenses between the absolutely necessary (rent, utilities, food, clothing) and the less than critical (dining out, entertainment, credit cards, luxury purchases). You don’t have to cut all of the fun out of your life, but you can find a way to balance and manage it.

Maybe this means holding off for a year on the purchase or lease of a new car, or perhaps it means considering finding a roommate to offset rental costs. In some cases, it may mean moving back home for a year or so to save money. Making the choice that is right for each individual’s financial status often leaves people thankful that they did.

In terms of what not to do, the list is simple and important. Don’t take on new debt to cover existing debts; this can open yourself up to predatory loans that do much more harm than good. Don’t ignore debts and miss payments — that will adversely impact your credit rating just as you are starting to build it. And don’t panic — there is always a solution for those who are willing to try.

No one likes to spend money on things that don’t seem to have value, but that is the wrong way to look at college loan debt. Students who have graduated and begun their work lives have already benefited from the loans, and now need to begin repaying them. It’s OK if it takes several years to eliminate; the point is creating a plan that honors past commitments. And reputable creditors are usually willing to work with you on a reasonable repayment plan.

For those who have received their student loans and benefited from them, this is something that needs to be faced, regardless of what action the federal government may one day take. The time is now — put everything on the table and start making smart financial decisions on it.

If done wisely, the debt will be gone before you know it. And people will learn early in their adult lives the value of paying debts, facing responsibilities and keeping promises. When that happens, the future can suddenly look a whole lot brighter.

M. Ryder