That "it takes money to make money" remains a truism of an American society that continues to exalt capitalism as the economic system to beat all economic systems.
Those without adequate ready cash generally have recourse to borrowing the money necessary to get a new venture off the ground. Of course, borrowing introduces adds a bit of complication to the calculation. Lenders demand interest for their advance of a principle amount, and they like their interest compounded, not simple. Anyone who borrows to finance a venture must therefore take into account the fact that she will have to repay significantly more than the borrowed sum.
Borrowing has the effect of what economists like to call "pulling demand forward." When you borrow money, you essentially spend today the amount you will make and have to pay back in the future. If, for example, when you finally retire a loan you end up paying back $1.70 for every dollar you borrowed years earlier, then this amounts to spending that extra 70 cents at the time you began spending the money you borrowed.
Borrowing money seems like scary stuff. And, indeed, it is serious business. What makes student loans so unnerving? Maybe it has to do with the fact that it is a significant amount of debt taken on at an early age, and with only an intangible asset to show for it: namely, a college education.
Perhaps intending to remove some of the dread attending the prospect of borrowing to cover tuition costs, an April 16, 2011 Omaha World Herald article declares student debt worthwhile debt to take on. The article reports that the consensus among experts is that borrowing for college remains a smart investment, especially compared to credit card debt, which next to student loan debt, and represents the next largest category of debt carried by Americans. Whereas credit card debt merely drains household budgets, student loan debt adds to them, in the sense that the borrower, who hopefully has a degree to show for all of that debt, realizes more income than she would had she never gone to college.
To emphasize this fact the World Herald article quotes University of Michigan public policy professor Susan Dynarski, who enthusiastically endorses student loans as eminently worthwhile debt, because it translates into higher future earning.
Still, student debt, which has ballooned over recent years, weighs heavily on the choices in life you can make, and can potentially limit your options.
You should not enter into the decision to borrow for college lightly, because the consequences are serious. You cannot discharge student debt in bankruptcy proceedings. And, like all other debt, it is subject to fees, late penalties, perhaps even variable rates of interest.
Entered into sensibly, however, student loans can prove a sound investment in your own future.