Personal Finance 

College Savings Interview: Part Two

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This is part two of our discussion with Gary Hoover, Ph.D., Professor of Economics/Assistant Dean of Faculty and Graduate Student Development for Culverhouse College of Commerce at the University of Alabama, and Warren Smith, Associate Professor of Economics at Palm Beach State College in South Florida, about the rising costs of a college education and what families and students can do to prepare themselves.

Gary Hoover Warren Smith
Gary Hoover
Warren Smith


Agree or disagree: Student loans are a last resort.
Gary Hoover Hoover: I will not entirely disagree. A loan is nothing more than a calculation about the value of future returns. Student loans have offered very favorable interest rates, historically, although there is considerable talk in Congress about changing those terms. However, loans that cannot be paid back become a burden that can last decades. Once again, it’s a calculation. If no loans means that education will be halted then it is best to find the most favorable terms available and move ahead. However, if loans are available but there is no realistic expectation that repayment can be made, then it is best to avoid them.
Warren Smith Smith: You need to be careful when you borrow any money. Student loans represent an investment that you’re making in your future career. I think that you must manage the amount that you borrow.  I recommend that students supplement their borrowing with part-time employment.
Agree or disagree: With a lack of entry-level jobs and sky-rocketing college costs, college-saving funds can be put to better use for both the prospective student and the parents.
Gary Hoover Hoover: Disagree. In the short run this might appear true. However, lifetime earnings for college graduates will be $1 million higher than those with just a high school diploma. Unless parents know of some savings plan that will increase the lifetime wealth of their children by $1 million, I’d suggest college.
Warren Smith Smith: Agree. There is always an opportunity cost in spending money for college. But in the long run the benefits outweigh the initial cost of college.  In addition, our society is also better off because we have an educated population. Education is a main ingredient for economic growth. However, some students may not be college-ready and have no interest in college; therefore, a parent should know this before investing large sums of money.  Maybe, there is a different path they need to pursue. Many students may need to consider the trades or entrepreneurship as other options for their success.
Agree or disagree: Saving for my kids’ education is important, but my retirement planning should take priority.
Gary Hoover Hoover: I would agree that retirement savings should come first. That means that taking advantage of employer matches into 401(k) plans or taking advantage of any tax savings available. Typically, the time when your children will be entering college will be your peak earning years. All necessary steps should be taken to save as much as possible for retirement.  One could count on their children to take care of them in retirement, in which case priority should go to college savings, however, that is not common.
Warren Smith Smith: I think that they’re both important.  This is why financial planning is critical in your younger years. If you decide to have children, you must plan for their future and that includes a college education. If you want to focus just on your own life, don’t have a family!

I’d like to thank Gary Hoover and Warren Smith both for their generosity in answering our questions and spending so much time helping educate students and their parents on how we can best save for higher education.

{ 8 comments, please add your thoughts now! }

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8 Responses to “College Savings Interview: Part Two”

  1. Carl Lassegue says:

    I think it’s interesting that they disagreed with each other on question #2. I would tend to agree with Gary Hoover though. We are still in a low point in our economy and jobs are still hard to find, but in the long run a college education is worth it.

    • DMoney says:

      Warren Smith makes a good point, though. We are so eager to put our kids in schools and teach them how to become great employees, but that’s just one outlet. There are plenty of alternative roads to a successful career and I think a parent really needs to be in tune with their kids and pay attention to their learning habits and personality to know if a traditional college education is right for them.

      • Matt says:

        College in essential for almost all jobs nowadays, the jobs that you don’t need college for and pay well are construction, plumbing,…, and I don’t think most parents want there kids doing blue collar work.

        • BestBet says:

          While earnings for some college grads will be higher, income will still depend on how the graduate applies their education. Many countries recognize the need to grow trade skills and they encourage students to pursue their strengths rather than force a college education. Have you called a plumber lately? I can guarantee they make a darn good living and probably earn more than most teachers these days (even those with post grad degrees). When you need a plumber, you usually need one quickly and you’ll pay for that service. When you need a mechanic to fix your auto, you need one pretty quickly and you hope you can find a skilled and reputable one. And you’ll pay top dollar for that service too. Oh, and don’t look down at that trade because so much of auto mechanics is computerized today. Your mechanic probably knows more about computers than the teacher you entrust with your child’s education. Does that mean you shouldn’t get a loan if you are college bound — no — but you should pursue your education in a way that it will be affordable. Some debt that you will be able to pay back is reasonable. Otherwise, try the community college instead of the more expensive alternative. Work during the day to earn enough to go to college at night. Take the number of classes you can afford. Yes, it may take a bit longer, but students can get there. Nothing wrong with an Associate degree that will feed into a Bachelors. At least you can show you have achieved a degree even in adverse financial circumstances. And, while your doing that, you are probably gaining more real-life business experience that will help you land a job — perhaps a better one than the 4-yr degree student who has only book knowledge. Don’t sell yourself short — there are many ways to achieve a college degree and many ways to achieve a good life that are not dependent on completing college or completing college with a big debt load. Look at Bill Gates, Steve Jobs and even Einstein. Some of the smartest people, didn’t fit the college mold. Certainly a college education is a good thing. But it is not the only path. Graduating from college with no job prospects and no way to pay back loans is simply a recipe for high stress. Many people have worked during the day to put themselves through school successfully. And, many parents work two and three jobs to put their children through college so they and their student can live without the burden of big debt.

        • DMoney says:

          It’s not just “blue collar” work. You will see a resurgence of trade schools in multimedia, design, software engineering, etc. Also, as prof. Smith mentioned, some kids are more entrepreneurial and may thrive in a related setting. Many schools just teach us to be employees; not business owners.

          So again, it depends on the person/student/child, and we as parents are conditioned into thinking we have to send our kids to X school and we have to pay X amount of dollars or have them accrue X amount of debt at 18-22 years old for college, etc. There are alternatives and I think more people need to realize that and research all of their options.

  2. Texas Wahoo says:

    “In the short run this might appear true. However, lifetime earnings for college graduates will be $1 million higher than those with just a high school diploma. Unless parents know of some savings plan that will increase the lifetime wealth of their children by $1 million, I’d suggest college.”

    I hate giant average numbers like this. We need a better comparison because those numbers are going to be skewed by kids going to Ivy league schools, good public schools, etc. I’m guessing that most people deciding whether to go to college are looking at lesser schools or even for-profit colleges. Also, kids not going to college will be skewed by the fact that a lot of people cannot go to college (whether because of lack of intellect, incarceration, etc.)

    It would be helpful to have a number that reflects that difference in a borderline student deciding to go to college or not.

  3. daenyll says:

    my sister did not fair well in college the first turn around, dropped after a semester or two. she did well in cosmetology school and then decided to return to school to be a veterinary technician. Sometime it takes a bit of growing up and focusing on what really matters and what a person is really interested in to succeed. Not all students are ready coming straight out of high school to take full advantage of a college education.

  4. Randerson says:

    I think a huge problem is that many high schools make advanced placement classes mandatory, and put all kids in a track for college. Advanced placement classes need to be for students who can handle them, not everybody.

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