The Dangers of debt
President Joe Biden made history last week when he announced the federal government will be forgiving thousands of student loans. This unprecedented decision will cost American taxpayers millions of dollars. As with most political decisions, this course of action has been met with a variety of responses. Some responses are obviously positive–especially from those who will have their debt forgiven–and some are negative.
I believe most people would agree that assisting those who are struggling to pay their student loans would be a worthy action to take. The president had many other options at his disposal other than debt forgiveness. He could have restructured the terms of these loans or reduced the interest rates of these loans and I believe there would have been widespread support for such action. I would suggest that giving these individuals zero percent financing for a period of time would have been an appropriate approach to this issue.
This article is not about the politics or economics of the president’s decision. I will leave that discussion to others who are more knowledgeable in those areas. Instead, I would like to offer three observations about this historic decision based on Scripture; specifically, I want to discuss how this decision fits with the Bible’s perspective on indebtedness.
Debt and the repayment of loans is a multifaceted discussion which cannot be addressed in one short article. My intention is not to deal with the topic of debt in an exhaustive manner, but to offer lessons I believe we all would be wise to learn in response to the president’s actions. More importantly, these are lessons we should be teaching our children and grandchildren.
1. Debt is to be used wisely and sparingly. In Proverbs 22:7 we read, “The rich rules over the poor, and the borrower is the slave of the lender.”
According to this proverb, there is a frank reality that exists between the borrower and the lender. This text provides a severe word of caution when it comes to indebtedness; it is a warning that should be carefully considered by all Christians. This verse teaches that when a loan is taken, the borrower becomes subservient to the lender. The borrower becomes a slave to the loaner because part of the borrower’s time and energy is invested in earning money to repay what is owed. When one person is indebted to another individual or institution, the lender gains power in the relationship. Because there are usually penalties associated with not paying debts, most honest people do what they must to pay what is owed.
According to the terms of the loan, the borrower must designate a portion of his or her income to repay the debt. By taking on debt, individuals are forfeiting a portion of their income which could be used for other necessities. Those who are already overwhelmed by debt often slip further and further into debt.
While the Bible does not categorically forbid debt, it does urge extreme caution when doing so. Incurring debt can lead to financial bondage and compound one’s economic challenges for years or even decades. In the ancient world, being in debt to another could lead to the borrower to being taken into literal slavery. Whenever persons consider taking on new debt, they must understand that by doing so they are sacrificing a portion of their financial freedom.
Our family tries to limit debt at all costs. I do not, however, believe all debt is the same. Simply put, some debt can be considered to be good debt while other debt is unquestionably bad debt. Of course some bad debt is worse than other bad debt, but generally speaking all forms of bad debt are to be avoided.
Good debt can be defined as an indebtedness that increases your net worth over time. In other words, good debts are investments for your future and help you create more financial stability in the future. The clearest example of good debt would be the purchase of a home. Generally speaking, buying a house is an investment that produces value in the future. Whereas renting a house or an apartment does not create wealth in the future, purchasing property is a solid investment. As my father always said, “God isn’t making more land.” Very few people can afford to pay cash for a house, especially first time buyers. While taking on the responsibility of a mortgage is a daunting task, the long-term gains are usually worth the risk.
Over time, houses typically appreciate (i.e., gain value); therefore, the purchase of a home is usually a good investment. My parents bought a house in 1976 and paid $34,000. I do not know exactly what the house would be worth today, but my father recently told me that a similar house in the area just sold for $350,000. That is more than ten times what my parents paid for their home.
Bad debt can be defined as an indebtedness that reduces your net worth over time. These liabilities are accumulated when debt is used to pay for items that lose value over time and do not contribute to your long-term financial stability. Bad debt typically comes with high interest rates, which only compounds the problem. Anything you cannot afford to pay for in cash that does not increase your net worth over time is considered bad debt.
Admittedly, there are times in which it is difficult to avoid taking on bad debts. The most common example of bad debt that sometimes cannot be avoided is the purchase of a car. Some readers may be surprised to read that buying an automobile is an example of bad debt. Sure, buying a new car can be exhilarating. But before signing for a car loan you must count the cost. Borrowing money to purchase a car is bad debt. Why? Because a car’s value depreciates over time; therefore, a car does not increase your net worth over time. With only a few exceptions, purchasing a brand new vehicle is a bad idea. Under normal economic conditions, buying a slightly used car is the better option.
When considering taking on debt, you must not ignore the dangers of accruing debt – especially bad debt. My grandfather always said, “Pay as you go and you’ll never owe.” I would say that is good advice to live by.
2. Debt is the responsibility of the borrower to pay. In Romans 13:7 Paul writes, “Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.”
In Romans 13:7, Paul uses the Greek word apodidomi. In the KJV and NASB the word is translated as “render.” In the ESV and HCSB the word is translated “pay.” Apodidomi is the same Greek word used to record Jesus’s words in Matthew 22:21. The word means “To pay something already owed, to pay off, to discharge what is due, a debt, wages, tribute, taxes.” According to Matthew 22:21, refusing to pay taxes is a sin. Believers are also commanded to pay workers an honest wage. Scripture also commands Christians to pay back what they owe in debts. When a person signs for a loan, the one responsible to repay the loan is the one who signed his or her name on the dotted line.
Whenever an individual signs for a loan, they are to bear the burden of paying it back in full. It is a poor testimony for a Christian to take on a debt and not pay what is owed to the lender. Scripture considers debt such a dangerous proposition, it even warns against co-signing for loans (see Proverbs 11:15, 17:18, and 22:26-27). Be careful when taking on debt because it is the borrower’s obligation to repay what is taken. Taking personal responsibility for debt is a biblical principle Christians must never forget.
3. Debt is to be carefully weighed. In Luke 14:28 we read, “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it?”
Like a contractor constructing a building, Christians must count the cost of all financial decisions. In the context of Luke 14, Jesus is talking about the cost of following Him. But the principle of counting the cost applies to other decisions people make as well. “Sit down” indicates someone who is carefully deliberating and tallying the cost of his or her endeavor. The reasoning behind this picture is that people are not willing to embark on a project unless they know they can see it through to completion, and pay for it. The cost of debt in the present and future must always be carefully considered. This includes the decision to take out student loans. Going into debt for a college education is a decision that should be carefully weighed.
College education can potentially be a good reason to assume some level of debt. But not always. Before taking on college debt, an individual must count the cost and weigh the decision very carefully. Typically, people with college degrees do earn more money. But once again, this is not always the case. Through the years, I have met people with degrees who are unable to find a job because there is no market for their degree or skill set. While it is not uncommon for people to work in a field outside of their degree, choosing a major wisely is the first step before even considering indebtedness. Some majors are promising when it comes to the job market. For instance, majoring in nursing, other allied health fields, education, accounting, engineering, and computer science typically make finding a job easy. Those who obtain an advanced degree in medicine, law, or dentistry also have multiple opportunities available to them. Meanwhile, many other majors may not provide as many opportunities for career development.
For the first time in my life, I can speak as the parent of a college kid. Seeing my daughter’s first semester college bill was startling to say the least. College is insanely expensive. There are, however, ways to counter the high cost of college. Of course there are scholarships (praise the Lord our daughter received a sizable one), but that is not the only way to offset the cost of higher education. Do not make the mistake of simply financing a college degree. Get creative, and do everything possible to avoid using student loans to pay for college.
In our home, we taught our kids the value of working, making money, and saving. In my opinion, for a child to attend college he or she must have some skin in the game (i.e., money on the line). How much financial burden a child is responsible for is up to each family. But I strongly believe children should learn the value of money as soon as possible. Helping pay for their own college is one way to teach the lesson. We never promised our kids a free ride to college. Nor have we advised our children to rely solely on student loans to pay for college. Our family set a threshold for the amount of college debt we will allow our children to assume. I will not provide the specific number, but it is substantially smaller than what many others have assumed in student loans.
Remember, there is more than one way to prepare for a career. Four years of college is not for everyone. Our oldest son had no desire to attend college. But because of his work ethic, he has a solid job and is making good money. Trade schools and the military are also great options for those who do not wish to commit to attending four more years of school. A four-year degree does not promise a student anything; it is not a guarantee for financial success. That is what makes wisely choosing a college and field of study so vitally important.
Based on these three biblical principles, I am deeply concerned about the lessons young people will learn through the president’s debt forgiveness program. The last thing our children need to learn is that they can be irresponsible with money and someone else will pay the bill. As Christians, we must understand the dangers of debt, take personal responsibility for our debt, and carefully weigh all financial decisions.