About Prudent $cholar

The Prudent Scholar explores the topic of money and higher education. We look at at big picture and small: both the latest news and the nitty-gritty details of college life that might help you save money and get more value from your educational experience.

April 18, 2011

Don't Spend Your Inheritance

"We're spending our children's inheritance."
~ bumper sticker
Your parents might joke that they are spending your inheritance. They might very well be spending it -- on you.  According to Sallie Mae, 24% of college savers use retirement accounts as college savings vehicles. 

Parents shouldn't tap their retirement savings to put you through school.  Why?  Because your parents will need that money to live on and they are going to need a lot of it. They could live a long, long time. Every dollar they take out for your college education is a dollar they don't have accruing interest to cushion their old age -- and your middle age as a caregiver.

Retirement savings is built on the miracle of compound interest. Compound interest needs time to work, and tapping savings mucks it all up. It reduces interest, which reduces interest, which reduces interest. See the Motley Fool's explanation and illustrations of compound interest.

Prudent scholars don't drain their parents' retirement accounts. 

Further Reading:
"Don't raid an IRA to pay for college" at Investment News
"An Introduction to 529 plans" by the U.S. Securities and Exchange Commission

April 14, 2011

The Anti-dowry: Student Loan Debt

Are student loans bad debt?   Photo: Tom Peck
The New York Times reports this week about rising student loan debt and the ramifications. In 2010, the average debt of college students graduating with loans was $24,000.  The gist of the article is that student debt is becoming more of a factor in American life. More college graduates have it and more of them have a lot of it. 

It's sometimes called the anti-dowry because unlike a dowry, which in some cultures helps a young couple get set up in life, a student loan debt can delay marriage, family, and home ownership.

Let's look at some salient findings and facts from the article.

The bad
- Student loans cannot be discharged by bankruptsy.
- Students who borrow from for-profit colleges especially likely to default.

The good
- College graduates earn more over their lifetime.
- College graduates are less likely to be unemployed.

The interesting
- President and Mrs. Obama finished their educations with a combined $120,000 of debt.
The Times reports that some economists are concerned that the scary stories of college debt will discourage people from attending college. But, college debt is seen by other experts as "good debt."

The Take-away: 
If you need to take on a loan to take on college, do it. Do it with careful deliberation and don't be part of the lost generation of young people who either forsake an education or spend too much on one. How do you know what's too much?  We'll explore in future posts.