Dr. Rick Franza, Dean of the Hull College of Business, discusses a different, timely business topic each Monday in this column. This week, he talks about student loans, debt, and loan forgiveness. The interview has been edited for clarity and impact.
ABD: We’re hearing a lot about student loans these days. Are student loans to pay for college a good idea or a bad idea?
Rick: They can be both. I think that student loans as part of a portfolio, and as a means to pay for education, are not a bad thing. But as with any purchase, you have to look at it in the context of what the loan is going to cost – are you going to get the right return for it? They should be in the context of expecting to pay them back.
ABD: When you say a “portfolio” to pay for education, what else would that include?
Rick: A portfolio would be a mix of savings, either the student’s or the parents’; scholarships, which are obviously very helpful; working while going to school, which many people choose to do – many of our students at Augusta University would much rather work than take loans; and student loans.
You can get a college education in Georgia relatively inexpensively. This state has done a good job of supporting higher education and keeping fees relatively low. The legislature has kept tuition stable for the last three or four years. If you’re on the HOPE scholarship – which is not that hard to get – tuition and fees are about $1,500 per semester. If you’re not on HOPE, it’s about $4,500 per semester.
ABD: We’ve all heard stories about students who are $50,000 or even $100,000 in debt because of student loans. How do they get to that point?
Rick: Student loan interest rates are pretty low and they make it easy to get them. Some people use the loans to help them live better, like buying a big screen TV – that’s not the majority, but some of them do. They’re not using it all for education and then crying about it afterwards. People can’t resist the money, so they get as much as they can.
That’s the reason we’re focusing more on financial literacy so that students don’t make mistakes like this.
ABD: The Federal government recently announced a student loan forgiveness plan, $10,000 for those earning less than $125,000 per year, and $20,000 for Pell Grant recipients who meet the income requirement. Is this a good idea?
Rick: I’m personally against all the forgiveness for multiple reasons – that doesn’t mean I think everyone getting it is undeserving – but anytime you do broad government action, you end up with massive inefficiency.
I think most people in really significant debt are those in professional schools – dental, medical, and law. Do we really need to forgive their loans? Are we to pay for ill-advised shopping? If people are in that much debt, they probably had other options to pay for education.
If they want to forgive the debt of those taken in by flim-flam schools, I’m good with the government doing that. But if everyone is going to get $10,000 forgiveness, why does it include the person who didn’t save and wasn’t careful? What about the people who saved and did pay back their debt?
We don’t need more things driving inflation up, and that is what this does. You could make the loans with zero percent interest instead, and even that is extreme, but forgiveness isn’t the answer. It exacerbates the problem because it incentivizes people to take out more loans because they think they’ll be forgiven.
ABD: What is your advice to people who might need to take out student loans to pay for college?
Rick: Use them in moderation as part of a portfolio. People need to treat the “purchase” of college the same as any other purchase, like the purchase of a house. They should buy what they can afford. You as the borrower need to value it like any other purchase: One, can I afford it and two, if I can, is it worth the cost?
It’s important to be educated about loans and do your homework. Student loans are not inherently bad but don’t take on more than you can pay back.
