Who gets to have ‘good debt’? A sociologist, theologian, philosopher and other experts weigh in

People have long debated what makes debt “good” or “bad.” The definition has changed over time, from ancient Greece to medieval Europe to the turn of the 20th century and into the modern age.

Ancient Roman law, for instance, generally viewed debt negatively, and debtors could even be executed for their failure to repay. Americans in the nation’s early days could be jailed for failing to repay debts — and some argue that debtors’ prisons persist. However, by the 1920s, an industrial America began to embrace debt as a way to access new technologies such as the automobile.

While definitions — and penalties for defaulting — have changed through the years, there is one age-old unifier: Access to affordable borrowing that can help people build wealth has never been equal, experts say.

CNBC spoke with professionals from various disciplines — philosophy, history, theology, sociology, and financial psychology — to discuss who gets to have “good” debt, and why.

Sociologist: ‘The middle class is hit really hard’

Sociologists have a theory known as the “Matthew effect.” It suggests: “To those who have much, more is given, and those who have little, the little they have is taken away from them,” said Frederick Wherry, sociology professor at Princeton University and founder of the Debt Collection Lab, a research initiative that tracks debt collection lawsuits.

In other words, the rich get richer, and the poor get poorer.

People who don’t need debt — they’re not in financial distress and don’t need to borrow to survive — are the ones most likely to have “good” debt, said Wherry, author of the forthcoming book “What We Owe: How Debt Came for All of Us and How We Get Free.” Such individuals — i.e., the wealthy — are also most likely to be surrounded by “good” debt: They’re socialized in environments in which they see other people with it, he said.

This scenario applies to “most of the country,” he said. And it’s not just the poor who suffer.

Low-income Americans typically qualify for financial aid to go to college and have more protections from debt collectors, for example, Wherry said. But the middle class is largely “on its own,” he said.

“The middle class is hit really hard,” said Wherry.

Philosopher: Money’s ‘greatest power’ is paying and preventing debts

Questions of debt are central to philosophical thought dating back to the ancient Greeks, said Graham Hubbs, a philosophy professor at the University of Idaho and an expert on the philosophy of money.

The notion of debt and its ethics are found in the early pages of Plato’s “Republic.”

“At the beginning of ‘Republic,’ the character Socrates talks to this old rich guy named Cephalus,” Hubbs said. “Socrates asks Cephalus, ‘What’s so great about being rich?’ … He says, ‘It keeps me out of debt.’ Socrates then says, ‘Ah! Is that the definition of justice: Telling the truth and repaying your debts?'”

Ultimately, that’s not the definition — but “the starting point for thinking about justice is being trapped by debt,” Hubbs said.

“Money’s greatest power is not buying things, but paying and preventing debts,” he said.

The concept of “good debt” is linked with the attainment of happiness, Hubbs added.

People choose to assume “good debt” because they think it will improve their lives — under the assumption their income will be sufficient to pay their debt obligations down the road, Hubbs said. Conversely, bad debt is linked to stress and anxiety, he said.

“Good debt” is becoming increasingly unattainable as the payments on homes and for college, for example, are rising faster than expected incomes — making debt “onerous” or leading people not to assume such debt at all, Hubbs said.

Historian: ‘Access to credit is really a two-tier system’

The early 1900s marked a real shift in Americans’ attitudes toward debt, said Louis Hyman, a political economy historian at Johns Hopkins University and author of “Debtor Nation: The History of America in Red Ink.”

In the early 20th century, U.S. society framed debt as quasi-immoral. “There basically was a sense that all debt was bad — that if you were borrowing, it meant that you were profligate or broke, and neither one is good,” Hyman said.

But a rapidly urbanizing America was becoming more industrial, with more workers earning steady paychecks that made installment lending possible for a growing range of expensive goods, including cars and household items, Hyman said.

“There was a broad sense in the 1920s that this was the way of the future, and in fact was seen as broadly democratic — the fact that you didn’t have to save up to buy a radio, that you could just listen to the radio, and you could listen to opera, the way a rich man could only hear opera before,” Hyman said.

That positive view of debt became “very broad” in the 1930s, ’40s and ’50s, as people saw mortgage debt as something to be proud of — not as a sign that someone was unable to afford their home, Hyman said.

Not everyone had the same access to credit.

The U.S. erected an “entire new credit regime” in the 1930s during the New Deal era, built predominantly for white middle-class married men, Hyman said. Others, especially Black Americans and single women, had limited or no access to that federal mortgage system and “the new world of credit that was expanding in the suburbs,” he said.

“This access to credit is really a two-tier system,” he said: one tier that was “cheaper, more expansive [and] more accommodating for the white middle class,” and another for those who could get credit at exorbitant rates or not at all.

Financial therapist: Debt anxiety may be driven by perception

These days, Sonya Lutter doesn’t hear the term “good debt” as commonly as in the past, she said.

“The general sense of uncertainty has people wanting to avoid any debt right now,” said Lutter, the director of financial health and wellness at Texas Tech University and an expert in financial psychology and financial therapy.

“So, is ‘good debt’ reserved for the wealthy?” Lutter said. “Not necessarily, but the anxiety of taking on ‘good debt’ is likely lower for those with options.”

That anxiety may sometimes be born more from perception than reality, Lutter said. Social media makes people constantly compare themselves to others online, she said.

“Is a person’s [financial] situation as bad as they think it is? Probably not. Can they potentially qualify for ‘good debt’? Maybe. But the perception is, I can’t even do it because so-and-so is so much richer than me and they’re struggling,” Lutter said.

Theologian: ‘A lot of this is about power’

Debt has long been part of religious history, a moral construct used to include or exclude certain people in society, said Devin Singh, a professor of religion at Dartmouth College and author of the forthcoming book “Sacred Debt.”

In Roman law and early Christian thought, for example, “while ‘debtor’ was used economically to describe someone who had received a loan, ‘debtor’ could also be used in law to describe someone who was guilty of a crime or used in scripture to describe someone guilty of sin,” Singh said.

The church’s view of lending and debt changed over time, he said. By the 1300s, there was a broad belief within the church that certain types of debt were good as long as they were “productive” debts that would “bear fruit” for the church, Singh said.

However, the church’s positive views on debt weren’t applied evenly, he said.

People deemed to have good credit were the ones who believed the “right” things — while nonbelievers and non-Christians could be deemed less creditworthy because they believed the “wrong” doctrines, Singh said. Indeed, the language of credit is tied to belief and trust: “Credit” is related to words like “credo,” which means “I believe” in Latin, Singh said.

“A lot of this is about power and perception,” he said. 

This theological divide is one reason the idea of unequal access to “good debt” persists, he said.

“Society has been shaped as seeing certain words or practices as good,” Singh said. “There’s momentum to that. It keeps going.”