Monday, September 14, 2009

Investing in human capital vs. saving for retirement

The Wall Street Journal's Steve Yoder writes about saving and educational debt in a piece that is probably most interesting for its laying bare of generational perspectives on thrift.

Yoder thinks his son should take out student loans to finance college, while he invests his earnings from co-appearing in the WSJ in a retirement savings account. There is absolutely no mention of relative rates of return or liquidity concerns, only the value of savings and thrift.

To be sure, the interest rate on federal student loans is quite low. You could arbitrage a gain pretty easily with just a money market mutual fund. Then again, that kind of behavior is what got so many people into trouble with real estate: borrowing to invest when you could avoid it. But I admit that the conditions are quite different, with a lot less risk.

But private loans are not cheap. And federal student loans are supposed to be means-tested. One could make a pretty good case that the taxpayer shouldn't be subsidizing his son's education so that the son can earn money in stocks and bonds, even if it is for his future retirement.