Student loans represent a new wave of debt in the U.S. economy. According to the National Center for Education Statistics, the average student graduated with $33,000 of student loans in 2014.
As America’s student debt tops $1.2 trillion, individual questions arise about the best way to fund education, benefits and risks, and how student loans affect the credit ratings of newly-minted professionals.
How are student loans classified?
Like an auto loan or mortgage, student loans are classified as installment debt because they are repaid in equal amounts over a fixed period of time. While consumer credit card debt is considered “bad” due to fluctuating interest rates, compounding balances and risk potential, student loans are classified as “good debt” for a few reasons:
These types of loans are used to build education and are therefore less volatile than consumer credit
Student loans are repaid in fixed amounts and have a lower risk of default than revolving debt
Interest paid on federal and private student loans is tax-deductible for most borrowers
Student loan interest rates are usually low and fixed in the case of many federal loans
Low volatility and fixed payments means decreased risk, a positive factor when it comes to credit scoring