- Bargaineering - http://www.bargaineering.com/articles -

College Savings Interview: Part Two

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


Agree or disagree: Student loans are a last resort.
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.
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.
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.
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.
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.
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.