Borrowing for skills that may not pay, and tax relief that depends on where you live

The biggest risks are paying for education that does not change earnings, financing it with debt, and skills losing value. Tax treatment of education costs and support varies by country.

11 min read · Level 1

The point

The phrase 'good debt' is attached to education so often that it has lost its conditions. I think education debt is good only when a cautious earnings estimate comfortably covers the repayments, and that a large share of education borrowing does not meet that test. The skill may still be worth having; the loan terms may still be the wrong way to get it.

What is it?

The main risks:

Risk What happens No earnings change the skill or credential is not valued or not used Non-completion costs paid, benefit not received Debt financing repayments continue whether or not the investment works Obsolescence the skill loses value as tools and industries change Concentration all human capital tied to one field or employer

Debt changes the risk profile the same way leverage does for any investment. Borrowing 30,000 at 6% interest over 10 years means annual repayments of roughly 4,076, about 40,760 in total. If the education raises after-tax pay by 5,000 a year, it covers the repayments with a margin. If it raises pay by 2,000, the borrower is paying about 2,076 a year more than they gain for a decade - and in many systems education debt is difficult or impossible to discharge.

Tax rules vary widely. Depending on the country, there may be tax credits or deductions for tuition, tax-free employer-funded training, special treatment of student loan repayments, or none of these. Some student loan systems collect repayments through the tax system based on income.

Why does an investor care?

Because a self-investment financed with debt has a fixed cost and an uncertain return, which is the combination that turns disappointments into lasting financial damage.

It also explains why employer-funded training is often the best-value option: it removes the cost and much of the risk while delivering the same skill.

This is educational information, not tax or accounting advice. Rules differ by country and change — get advice from a qualified professional in your jurisdiction before acting.

Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.

Sources: U.S. IRS - education credits; U.S. Federal Student Aid; UK Government - student finance; OECD - education statistics

Example

Two ways to fund the same 30,000 programme.

Option Upfront cost Annual repayment Risk if pay does not rise Student loan at 6% over 10y 0 about 4,076 continuing repayments Employer-sponsored, stay 2 years 0 0 must stay or repay a share Self-funded from savings 30,000 0 savings lost, no debt

The employer route came with a condition: leave within two years and repay part of the cost. For someone planning to stay, it was far lower risk than either borrowing or spending savings.

The common mistake

Borrowing heavily for education on the assumption that the qualification guarantees a higher income. Repayments are certain; the income change is not.

How it works

Step 1: Compare repayments with a realistic pay rise

Compute annual loan repayments and compare them with a cautious estimate of the after-tax earnings gain.

Step 2: Check whether the debt can be discharged

Find the rules on education debt in your country, including income-based repayment and forgiveness.

Step 3: Look for employer funding first

Ask whether your employer sponsors training, and read any repayment conditions.

Step 4: Check local tax relief

Look up official guidance on tuition credits, deductions or tax-free training support where you live.

When to use this

When considering borrowing for education or deciding how to fund training.

When not to use it

Do not rely on general descriptions of tax relief or loan rules; check official current information for your country.

How investors actually did it

A recurring pattern: student debt with low completion

U.S. Department of Education data and research have highlighted that borrowers who take on student loans but do not complete their programmes are at higher risk of default than graduates, because they carry the debt without the credential's associated earnings.

The worst outcome is debt without completion. Weigh your realistic chance of finishing before borrowing.

Do this now

Calculate annual repayments for any education loan you are considering
Ask your employer whether they fund training

Create a free account to read the rest and apply it to your own investing.

Related lessons

Leverage: the same asset, a different outcome — Borrowing to invest does not change what you own. It changes how far the asset can fall before the decision is taken out of your hands. (11 min)
Why two identical returns are taxed differently — Most tax systems care less about how much you made than about what kind of money it was and when you took it. Same return, different asset, different amount kept. (13 min)
Appraising one opportunity: evidence of the outcome, not the promise of it — Before paying for a course, qualification or programme, look for evidence that people like you achieved the outcome you want, check completion and employer demand, and compare cheaper routes. (12 min)