4.4.1 Student loans: good or bad

From: Financial Consumer Agency of Canada

The answer is: neither. Like other forms of credit, a student loan is a tool that can help you achieve goals that you otherwise might not be able to afford.

Even so, financial experts often distinguish between "good debt" and "bad debt."

  • Good debt is an investment in something that creates value or produces more wealth in the long run.
  • Bad debt is debt taken on to buy something that immediately goes down in value or to buy something that you can't repay on time and in full, thus incurring interest charges and more debt.

According to these definitions, a student loan is a good debt because it can help you increase your earning power and achieve your life goals. (However, if you are unfocused in your studies, take out loan after loan, and end up with a large debt and little education, a student loan would be a bad debt.) As long as you refrain from borrowing more than you can repay, and you manage your debt well, a student loan can be a good financial tool in your life.

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