What Does Cutting Rates On Student Loans Do?

from Brookings

Are lower interest rates the best route to a fairer, more effective student loan program? From the rhetoric heard in Congress and on the campaign trail, the answer appears to be “yes.” But both empirical evidence and economic theory show that lowering interest rates is a blunt, ineffective, and expensive tool for increasing schooling and reducing loan defaults. There are much better ways to achieve these important goals.

Let’s step back and consider why government lends to students in the first place.

Education is an investment: it creates costs in the present but delivers benefits in the future. When students are in school, expenses include tuition, school supplies, and lost earnings. Benefits after school include increased earnings, improved health, and longer life. To pay the costs of their education, students need cash.

In a business deal, a borrower might put up collateral in order to fund a potentially profitable investment. The collateral would include any capital goods used in the fledging enterprise, such as a building or machinery. Similarly, homeowners put up their home as collateral when they take out a mortgage.

While there have been occasional efforts to offer student loans securitized by human capital (e.g., MyRichUncle[i]), none has moved beyond a small niche market. This is because it is very difficult for private parties to place a lien on (or even confirm) individual earnings.

This private market failure is one reason why government plays an important role in lending for education. Governments, through the income tax system, have the unique ability to both measure and collect income.

Given that federal loans are intended to correct a capital market failure, how should they be designed? What interest rate should be charged? If providing liquidity is the only goal of the loan program, loans would be provided at an interest rate that covers the government’s cost of making the loan. Taxpayers would seek neither to make money from these loans, nor subsidize them.

More here.

30 Responses to What Does Cutting Rates On Student Loans Do?

  1. wenqi zhang April 21, 2016 at 6:53 pm #

    This is an interesting article, the education is the most important things in country. High level education means it can improve the national power, the world have many market and business also need to improve the high technology product. All the thing need to high level education and make country development quickly. But it is very difficult to make everyone have the same opportunity to go the college. In some poor family, parents can’t pay too much money to their children continue the high education in college. So lots of people only borrow the loan from the government to continue college education. This article talk about cut rate of loan and the effect.
    So most of the student borrow the many from the federal government, private lenders. The federal government funding for college students, including scholarships, work-study programs, and loans directly issued by the U.S. department of education, because of low interest rates and fixed, is often the first choice of students. It is understood that undergraduates of loan interest rate is 3.4%; Graduate student is 6.8%, the reimbursement deadline for 10 to 25 years. Due to the limited amount of federal student loans and cannot completely solve the funding needs of students, so it is inevitable choice to private commercial loans. , by contrast, private lending rates to double, but still about 2% lower than the general commercial loans, review condition is more severe, the family income level determines the loan amount.
    They have lots of aspect government work to do. Most of the loan give the low-income student, student can go to the college and also the interest rate is zero. To another loan, the student borrow the loan to student and they must pay back with capital and extra interest. Interest rate is set by the congress. But is reduce the interest rate really can increase the new student enrollment? Most of people think it is efficient, because the loan can provide the more opportunity to have college education, it can stimulate the student to go to the college. But some people also think it is inefficient, because go to college is the personal decided, some student want college education, but some people don’t want college education, so this problem is in suspense. And from the loan defaults, reduce of the interest rate can reduce the behavior of loan defaults, but not too much. As the article write, the ten-year payment on a $20,000 loan is $204 when the interest rate is 4.29%, and drops just twenty dollars. If the interest rate is cut to 2%. There is no different before reduce the interest and after. So it is an expensive tool to make more people have college education and reduce the loan defaults. It is get the half the result with twice the effort.
    So if government want to give more opportunity to the student who want to have college education but can’t pay for it. They can reduce the tuition fee or the student subsidies, it can really give them a chance to have a college education directly.

    • Burak Eraslan April 22, 2016 at 5:00 pm #

      I am currently in college, so it is going to be highly ironic of my saying this however, I do not agree with, and actually completely disagree with what this article says. I want to talk about the portion where it states that “Education is an investment: it creates costs in the present but delivers benefits in the future. When students are in school, expenses include tuition, school supplies, and lost earnings. Benefits after school include increased earnings, improved health, and longer life. To pay the costs of their education, students need cash.”
      I really dislike this because, as a student in college, I am losing the idea of being in college, and am slowly losing the value of college. This is not because I do not like the work that we have to do, but I just don’t see it to be the most efficient way of spending over 200 thousand dollars. The amount of investments and sacrifices that you make to go to college is nowhere near the amount of return that you get. How do you get improved health after college? Once you finish college you are put into a life of constant work that you are not completely happy doing, and you live like that until you retire. If you think about it, the end result is not that appealing, and if you put this much time and effort into something as big as college, you should be receiving a lot more than a simple slap on the back after college.
      Also, is the education system really an investment that is worth it? There are people who drop out and understand that college is not necessarily the required route to get somewhere in life. I do understand that knowledge is crucial, because ignorance is bliss, but I just don’t believe that college is the answer for all of this.

  2. Michael W. Alescio April 21, 2016 at 8:10 pm #

    Education is an investment was a very interesting idea to me. I had never thought of education to a country’s citizen as an investment for the country. But it makes complete sense. Because what an investment really is one party investing in another’s future in the reason both parties will be better for it. So for the student they get the luxury of going to a school and studying a subject that interests them so ultimately they will do a better job at it and be more prepared than if they did not go to extra schooling. This eventually will make them more money. For the country, this creates more innovation and with more innovation comes more jobs and then better competition. With many jobs open this then means there are few people unemployed, which is a huge deal in our world today.
    Private Market failure started ever since the housing market crash. Prior to 2008 people would do something called flipping houses. This would involve a person buying a house updating the house and restructuring it, and then re selling it for more than they bought it for. This was happening at an insane pace. Many smart economists said beware, this pace is too high to maintain. Then what do you know, the market goes into a severe recession. This is what caused the government to step up and increase loans because there was not as many rich uncles loaning to kids who needed money for college. It made it ever more important for the government to step in and do ultimately what they did which was handing out more loans. This all makes too much sense. In my opinion, the government should offer more money to students looking to further their education.
    Interest rate subsidy is an interesting idea. It took me a little while to think threw would a subsidy be a good idea. Because it is a very abstract idea. In my mind however, it does. There are so many young adults and even some other adults who are wishing they could go to college but simply do not have the money to afford what college costs nowadays. A subsidy would give these people the chance they are looking for. Ultimately like I talk about above, education is an investment to the country. A subsidy would not be such a bad idea since these investments have been proven to better our country as a whole.
    Income based repayment system I could see where some people would like this and others would not. But in a way this almost happens already. There is a reason ivy league schools have so much money, and it is because when people come out of their school they come back after making their fortune and give back. Those that do not make as much will not have as much to give back. This is the same idea as an income based repayment but it just makes it a forced expense instead of a voluntary one. America is all about being free and having the choice to do what you want. But an income based repayment would be a good idea. Because those that make a fortune after they are done at the UPenn business school would be glad to give back to their roots.

  3. Matt Gorski April 22, 2016 at 10:37 am #

    Education really is the best investment a country can make in itself. Improving education and the access to education across the board will lead to greater innovation, design, and advancement for society. By educating the youth of today, you are empowering and arming them to take on the problems of tomorrow. While there are short term losses when getting an education like the cost of tuition, school supplies, and earnings lost for not working. But these original loses are expected to benefit both the individual and society as a whole through improved earnings, improved health, and even longer life span. But in order for students to be able to reach these ends and benefit themselves and all of society, they must first have the money to pay to gain the necessary skills and information. But an ever increasing problem for college graduates is the mountains of debt they graduate with after years of student loans. For lower income students, they qualify for a federal loan with no interest rate. But for many other students, they receive loans with interest rates, adding to the amount they owe while they are in school. In the 70’s and 80’s, the interest rate for student loans from the federal government was in single digits, resulting in a spike in prospective students looking for a loan, and therefore putting enormous stress on the federal government.

    The recent debate in Congress and across the country is focused on lowering interest rates for college-bound students looking to improve their way of life by gaining an education. By lowering the interest rate on student loans, it decreases the overall cost of the education over the lifetime of the individual. With lower interest rates, that means students are graduating college with less debt and are on a better track for future success. This also means that less people will be forced to default on student loans because they will have less debt to pay off after college. These factors will therefore make students more motivated to attend college and less worried about the overall cost of attending college potentially outweighing the positives that can come from it. Despite the fact that lower interest rates for students will mean less money for the federal government, it will have long term benefits that will more than make up for the lost money. With more people being able to attend and afford college, it will result in more technological advancements and innovation that will benefit society and the world.

  4. Austin Lopes April 22, 2016 at 1:26 pm #

    I would like to start off by saying I firmly agree with whatever it takes to make the cost of loans or interest on loans to go down. Why? Because college is ridiculously expensive as it is and no one can argue otherwise, if they are hit with the cold hard numbers of today’s biggest money making business out there. There were a few points that I very much disagreed with. This article first states that, “benefits after school include increased earnings, improved health, and longer life. To pay the costs of their education, students need cash”, which I highly disagree with. Just because I went to school does not mean I am going to live longer then a person who does not go to school, so therefore it should not be stated as a proven fact. For example, if we were to look at our ancestors who lived before us and received no education actually lived very long lives themselves without a hint of education. I believe the key to a longer lasting life is just health in general, therefore a person should take care of themselves like working out and distressing themselves, unlike what an education actually does, which is gives a person no time to take care of themselves and put them under a tremendous amount of stress. If a person were to examine college kids and their health habits they would see how extremely unhealthy an education could lead people to be. Another reason I am taking this position is because I am experiencing a college education first hand during this time period unlike the author of this article may have.
    Another thing I highly disagree with or do not support is when the article states, “While an interest cut is unlikely to reduce default, it is extremely costly. Why? An across-the-board interest subsidy benefits every borrower, including those who have high earnings and no difficulty repaying loans. An interest subsidy is therefore a poorly targeted, expensive tool for reducing loan default in a mortgage-style repayment system”, they think twenty dollars from each student is going to kill them? How about all the students they rip off an extra twenty thousand dollars a year? Give me a break, college is the biggest money making business out here. They make incredible profit, now, I understand that twenty dollars does add up, but so does the extra twenty thousand dollars per student. If it is putting money back into us college students’ pockets then it is for the best. I mean for crying out loud they are so money motivated that now college loans will follow students to the grave, not even bankruptcy can get a person rid of these loans. Now that is truly mine boggling. What that is basically saying is saying that a school cannot cut its losses for one person, even though they have millions of extra dollars to build these extravagant buildings, but the person who has no money to hold on to their own belongings and goods still have to pay out their loans and on top of that they will probably receive more penalties because they will not be able to provide the funds necessary during the time to pay off their payments. Colleges and Universities need to begin to figure out how to make their education much more affordable, because now an education is become more of a life burden then a life investment.

  5. LI YOU April 22, 2016 at 3:16 pm #

    Bankruptcy lawyers association, the United States recently to survey 860 bankruptcy lawyers, the results showed that nearly eighty percent of respondents, confirmed that the student loan defaults are different degree of increasing momentum. 23% of lawyers pointed out that even in the past 3 ~ 4 years, student loan defaults increased by 50% ~ 100%. More and more students loan asset-backed securities, a default or downgrade, “the student loan growth is blowing balloons, and the possible bubble.” Last year, the College Board says, 56% of public four-year colleges and universities graduates with student loans, $22000 per capita, and the Numbers of the private universities are 65% and 28000 yuan. Not only that, student loans also involving parents. Statistics show that in the past five years, the parents for their children share the amount of student loans rose 75%. Many insiders agree that in the United States, this situation is very similar to mortgage a few years ago. At that time, in the “haves” homes have good vision, under the induction of a lot of people don’t consider their solvency, went to borrow to buy a house, lead to growing number of mortgage, the subprime rapid expansion has given rise to a large number of bubbles. Finally wait until the bubble burst, the real estate market has collapsed, those who borrow money to buy housing foreclosures, “haves” dream suddenly burst, but also all be also the mortgage interest for many years. Convex glass for college students, by contrast, the water in the month’s vision is “highly educated, good work”. Moody’s analytics, has warned that is different from other areas of the credit crunch, because the debit and credit sides of student loans have not cut realistic expectations, increasing rise in number of American students loans during the financial crisis, on the contrary reimbursement situation is getting worse. “The prospect of student loans is alarming. Used to be a dream maker. In fact, the first student loans in the United States, there is no problem, is purely a “dream maker”, help countless students to complete the dream. America’s education cost is very high, a four-year public college tuition and accommodation close to $20000 a year, private colleges and universities has reached nearly $40000. If you are going to law school, business school or medical school, the tuition fees will be double. American parents do not like traditional impression at once, the child has reached the age of 18 in China. In fact most of the parents will share the children’s college expenses. Just household annual revenues of $50000 to the current us levels, is unlikely to produce a doctor or a lawyer.
    So, if you want to enter the perfect ticket of colleges and universities to step into society, become the only way to loans. There is a student in neuroscience at Columbia University, each semester, facing the high tuition and living costs of $30000 to $40000. Even if she is skating athlete before college, have some savings, but still can’t afford the tuition, apply for a student loan to become the only way for her. According to the project on student debt, the United States in 2008 about 67% of college graduates with loans, many celebrities have loan experience. Former US President Bill Clinton can complete their studies, and by the help of student loans. In accordance with the relevant provisions, from 6 ~ 12 months after leaving school, students begin to a fixed monthly payment. If can’t find a job, can apply for a moratorium on the reimbursement or lower monthly payments, but in the end all paid, because the student loan is very few in the United States and filing for bankruptcy will not off of one of the debt. Until the job many years later, Clinton still owed during the period of student loan. In fact, also many people embrace the grandson also in student loans. Many college graduates become students with debts might do.” The former dream making machine, now has become students with debts might do “making machine. Let the student loans changed flavor, is a steep climb American university tuition fees. So on the one hand, the university should control the cost efficiency, on the other hand, students should be according to their abilities and needs, choose low-cost school, rather than by the federal government provides student loans to help students complete their studies, and ultimately borne by taxpayers loan default risk and loss.

  6. Burak Eraslan April 22, 2016 at 4:50 pm #

    The idea of student loans have grown to new levels and needs to be alleviated soon. This is beginning to become too much, and it is not stopping at any rate. There are alumni that tell us that the cost of college used to be a few thousand dollars for 4 years, and now we look at college rates and all we see is debt without relief. My high school teacher was telling me how she is going to be paying off her college tuition until the age of 70 because of all of the interest rates spiking up so much. If you think about it, with the immensely overpriced cost of tuition, students are slowly becoming less and less interested in going, and attending because they are all aware of the financial sacrifices that will come from the amount of debt that they will be getting themselves into. I think that although there have been certain tools to show that the decrease in interest would not benefit the economy, or that it would not be very beneficial, I think that it’s not true. How can this not motivate people to attend college, and come out with less payments? Currently I know friends that are paying for college, but all of the money that they send out to the schools are going to interest. They will pay about 200 a month and only a very small portion of that money goes to the actual tuition while the other goes solely to the interest. If you look at it from a realistic lens, you can see that this doesn’t make sense. You leave college with 40k of debt, only to pay 80k at the end of all the interest. Most colleges nowadays range from anywhere between 50-70 thousand per year. Now if you are going for an undergraduate degree without any scholarship, you are looking at 200 thousand in debt, and after interest rates you will probably pay twice as much. This is not acceptable, and definitely needs to stop.

  7. Felicia Benjamin April 22, 2016 at 6:38 pm #

    Student loans are highly abundant in today’s society, and for some can represent a significant financing instrument towards secondary education. I agree, secondary education has become the modern equivalent to a high school diploma. However the main and most significant distinguishing factor is the cost. With that said, the decision to attend college is a valuable investment to create, develop, and jump start a better future. Unfortunately, for many opportunity may yield a hefty price tag. Students after graduating and embarking on new journey may be subject to endure multiple years of payments, and even then the borrower may not have paid off a significant amount of the principal loan. This is detrimental to the success of society as a whole, because essentially college grads will be placing other highly significant aspects of their lives on hold. When students are trying to get their student loan debt under control, they may not be placed in the most optimal positions to take on other ventures such as marriage, or homeownership, and significant outstanding debt can adversely affect credit scores. Since, the issue of student loans can represent both a valuable resource and an economic burden, it is inevitable that members of society will aim to combat the problem. The main issues with student loans is that when you graduate you will owe substantially more than you originally borrowed, since your principal loan continues to acquire interest while you are in school. One way to combat the solution is to decrease current student loans interest rates. This method is proven to be ineffective because it makes little impact on long term payments. I agree that there are better alternatives to solving the problem that student loans present. One solution, would be to increase additional grant and scholarship funding so that students would not need to take out loans. The main issue with the current education system is that if a student is not on an academic, need based, or athletic scholarship then there are minimal options for financing secondary education. College becomes increasingly expensive with every passing year, and the financing each year may become increasingly difficult. As the years increase, loan amounts increase and it seems as though, loans are becoming one of the primary sources of funding for college as one of the easier options. This is why society needs to implement a more effective plan so that a less significant amount of individuals will need to take out loans. Instead institutions need to increase scholarships, grants, and aids, or better yet institutions should lower their tuition and fees. Society fails to realize that most students cannot afford to attend college, especially first generation students. While many parents may have set aside funds and planned for the future education of their children, many other parents have not. Therefore as a society we need to reform the system so that we can stop fostering a system of debt. Every student wants to reach their fullest potential and attend the university that is right for them, but often times the best institutions are accompanied by exuberant costs, which students attempt to fund with debt. When students graduate their programs and are confronted with long term debt, they develop a resentment toward their institution and try to get as far away as possible. This is also problematic because this environment restricts students from giving back to their institutions. If more students graduated and gave back then future students will thrive, in addition to the school. Overall, the issue of student loans present more problems that the economic debt that is obvious on the surface. Instead society, overall should work on making secondary education less of a burden to stimulate growth and prevent the resulting events that this significant debt can cause.

  8. Kira Williams April 22, 2016 at 8:04 pm #

    For most people higher education is not a commodity that can be paid out of pocket. Then, insert the need for student loans, thousands of dollars lent out at a time. Millions of Americans are facing the issue of how to finance their educations and shopping around for the best interest rates so the debt they graduate with is not so grotesque. Taking a course in macroeconomics I have learned that interest rates eventually are controlled by consumers in the loanable funds market. Lowering interest rates might make students happy, but everything is relative in economics, so one decision will affect everyone else. Dynarski is right, education is an investment but every year that investment seems to be creeping out of reach for many people in America. They would jump at the opportunity for lower interest rates. The cost would not be such an issue if the degree of job security to pay off the debt was higher. There is more of a concern out there to get a good enough job to cover the cost of living.
    The question posed is will lowering interest rates increase college enrollment? We would like to think so, but economists do not see that solution fitting well. It is more likely that people are going to school whether or not rates are x, y, or z figures. There is not a strong enough correlation between the two. This makes sense because people who are set on going to colleges or universities they will take the plunge and deal with whatever interest rates are out there. The real issue behind loans is making higher education more affordable at the bottom line, therefore interest rates will have little to no influence. The other argument about defaulting on loans is not strong enough either, because the root goes back to actual principal cost of tuition and fees.
    I have been taught changing interest affects other factors in the economy, but I am not entirely sure how it works so this article was enlightening based on that. It is simpler than I thought it would be. The people who can afford the higher interest rates are getting a benefit that technically should not apply to them and the federal government would be losing potential revenue from the incoming interest. This is similar to the issues surrounding Senator Bernie Sanders wanting to implement free public college education. If everyone, rich or poor, gets the same rate then school are losing out on money. If people can afford it then they should pay. These programs need to be tailored to hit the proper targets. There should be a way to compare incomes and have a ratio for what people can afford; similar to FASFA but more realistic, taking into account life’s other expenses.
    There is an interesting solution presented in the article, the Pay as You Earn that are payments taken from income through a fixed income. It reminds me of an automatic retirement fund payment or even child support payments. I think that is a good idea because when people are making more they will pay more and maybe, their loans will be paid off a little sooner. In the conclusion, everyone knows that to increase enrollment college just has to be cheaper. The law of supply and demand tells us that, along with common sense, but we need real and reasonable plans to get to that point. If education is really that important to better the country and the world the system needs to change.

  9. Meghna Shah April 22, 2016 at 8:35 pm #

    Many people consider even going to college after high school, simply because of the fact that college is way too expensive. Although tuition varies from school to school, it still is expensive. Most college students take out loans, and eventually have to pay them off once they graduate. The article “What does cutting rates on student loans do?” by Susan M. Dynarski, makes really good points.

    If interest rates for student loans were cheaper, it would make a drastic difference to the amount of student attending college. Having the interest rates lower enables more students to attend college, and have less money to pay off in the future. It allows them to be able to get a college education and make a living with their lives.

    But the article also speaks about an opposing side. Many students, after they graduate college, may not even get a job. They are in crazy debt, but still have a possibility of being unemployed. It sure is risky. It makes one really wonder, is education really worth the investment? I feel as if I am on both sides of this debate. If one is not guaranteed a job after, going to college, getting good grades and taking out so much money in loans, what really is the point of the whole thing?

  10. Gregory Doyle April 22, 2016 at 8:54 pm #

    I truly do believe that aside from its many faults, America is the greatest country in the world. Sure, there are plenty of dumb Americans with a false sense of patriotism and ambiguous reasons for protests, but the country still dominates as one of the global power houses for trade, economics, and many other areas. Yet, we still have yet to develop a system as a nation to make a college education an affordable and easy process. While there is still some financial aid available to select students, students are still unfairly judged by their parent’s income bracket and given an according amount of aid.
    I chose to attend Seton Hall University because of the significant amount of aid that was provided to me upon my acceptance to the university. However, the aid that I have received will barely ease the mountain of debt that slowly accumulates under my name. By the time I graduate in 2018, I will find myself in over $100,000 worth of debt. Great way to start my adult life! However, I cannot help but think to myself: what would life be like if I attended university for free? Is that even possible in America?
    Free college would absolutely be free, however college will still get paid for (one way or another). Whether it be paid by students or by the government, people will still have to pay for college. However, it is a shame that in 2016 America, a student is penalized for wanting to better them self through education by having to pay an enormous fee. Federal aid only does so much, especially for those with parents who are in good financial standing. Unfortunately, most federal aid companies allocate the amount of aid by parents’ income, yet not everyone’s parents are paying fully for their children’s education.
    Luckily, I will not have to start slaving myself to pay off my enormous debt immediately after graduating. Having that 6-12 months period to first find a good job and allocating a fraction of my salary towards my debt will certainly help my sanity. Yet, the loans are still accumulating interest, which I will also have to pay in the future. While it is easy to take small amounts out of my pay check to help conquer my college debt, the interest rate is still at a ridiculous amount, essentially costing more money in the long run.
    Universities and colleges in America need to understand that no education should cost $60,000 per year without a scholarship or aid. It is simply ridiculous to expect an American family to be able to afford such a high tuition and still be able to function. While some still say “College isn’t an essential”, it actually is becoming more and more of a basic prerequisite in today’s society. The best paying jobs and most prestigious career fields all require AT LEAST a college education, therefore making that statement invalid. Hopefully in the future, I will be able to send my children to college without it costing an arm and a leg.

  11. Samantha Voltmer April 22, 2016 at 11:13 pm #

    I find this article to be very useful, not only for myself, but for future college attendees alike. Very recently a close, childhood friend of mine reached out to me seeking advice on what college she should attend next year, which would be her freshman year. She has two older siblings, who are in college currently, thus leaving her parents with very little wiggle room when it comes to another college tuition. Her oldest sister attends a very prestigious private school, and was rewarded scholarships that helped cut the cost of her tuition, meanwhile her next oldest sister chose to go to a county college. These two alone are more than enough to leave her parents paying off their children’s college for years. Thus adding another one onto their payments is a nightmare. My friend got accepted into the same school as her oldest sister, with very little in the form of scholarships, and into a smaller, lesser known school in Pennsylvania who gave her almost a full ride. When it came time for my friend to decide which college she was going to attend in the fall, she ultimately had to decide if she wanted to leave a life where she would be tied down with student loans or minimal payments. She chose the lesser school because of the money, and I fill many students are choosing similarly. I personally think that this choice is a wise one, however I wish it wasn’t necessary.

    I would love to live in a world where our decisions, especially when it comes to colleges, did not depend on money. This is obviously just a fairy tale and not at all likely to happen, however there must be a way to improve the situation that we are in currently. As this article points out, many presidential candidates have been discussing this matter during their campaign speeches and debates. However, is it truly possible to have a cheaper education based on lower interest rates, is this the best option, and could a college education actually be free? This article adequately explains these answers, and honestly helped me understand the whole economics behind this topic better than just listening to the candidates, who might just be saying things to get voters.

    This article explains that if we were to lower interest rates the overall effect on our loan payments would be minimal and more expensive. The way I look at this is, that if I were to pay less of my loan, that doesn’t necessarily mean that my bill or payment is cheaper. Meaning that money that I am not paying still has to come from somewhere. Since these loans are federal loans they come from the government, which means the taxpayers would be responsible to pay for the difference of my loans. No matter how much money you make, I can guarantee no one wants to pay more taxes. Further this method of lower interest rates on student loans is not proven to increase the number of students who will attend college, which I honestly like should be a priority. The more people with a college education, the more our society will be benefited. Needless to say the topic of student loans is a very personal topic to many, and one that might never have a solution to.

  12. Billy Vorrius April 27, 2016 at 4:02 pm #

    This article should have been called “want to increase U.S. competition for jobs? here’s how”. Though I have noticed many of the people I attended high school with are not going to college, I have seen the cause of that is just pure laziness if anything. I am a part time worker and a full time student and plan to repay most of my loans after I get an actual job after I graduate. I know the loans are going to be a lot to pay, but most people are either dealing with it like I am or their parents are helping. The main point the article focuses on are the mishaps and misunderstandings of the student loans and how cutting rates is actually doing more harm than good. The article then suggests a good “income rate loan repayment plan”. I initially thought this would be a great plan: I would love to have a paid internship that paid me $15 an hour, which will help my experience as well financially help me in order to pay for my loans. The huge problem is that most firms would not hire me even for an internship because I have no experience. Also, even if firms were willing to hire exclusive internships, most people would not be able to get into them due to their negligence or the intense competitions to obtain that kind of internship. Though it is a great idea, it is highly unlikely because of those reasons.
    The part I am more worried about are the supply of jobs after I graduate. I plan to get a major in marketing and a minor in finance. I also want to do internships before I graduate. Let’s say I graduate and intern for 2 years at a firm and do case studies. I have to get a job in order to pay those loans off. There is no way I’ll ever be able to repay them if I do not have a job in order to earn income to pay those loans off. Thus, we need to make sure the education I am provided now is helpful in the next 4 years so I can obtain a job. If we do not do this, most students will not be able to pay these loans off, and the entire “student loans are an investment” idea will go down the tank, for which it is a failed investment. If I cannot obtain a job in the next 4 years when I graduate, then I cannot repay those loans, which means I am technically a failed investment. Nevertheless, I as the consumer am investing in an education, so I am assuming that I will be able to receive a job to pay these loans off. We need to look more at the core of this, which is our curriculum, in order for students to obtain jobs after graduation.
    Wanting more people to attend college is more competition for me and my fellow colleagues, so I completely disagree with changing the loan system to entice more individuals to go to college. Instead, we should make sure the curriculum for anyone willing to go to college is fitting for our future.

  13. Stephanie Nwaiwu April 29, 2016 at 1:47 pm #

    I’m really not sure if it is a rare thing that a student would not have student loans. I think it is considering how many of my friends have them. I’m lucky in the sense that I do not have to pay student loans and didn’t have to take out loans to afford school. I do not even know the process of taking out loans, I’ve heard of the process a bit, cosigners are needed which is usually your parents or some sort of close family friend. The complications of the student loan process make college just that much more out of reach for underprivileged families and students, along with the inflation in the rates they have to pay,; meaning that some students take 30+ years to pay off their student loan debt. Which is ridiculous in today’s day and age. According to this article, cutting rates on student loans is actually a bad idea. The article says that while in theory it sounds great and effective, the way it would go through congress and in government would cause lots of bad implications that could be potentially backfiring. The article says that if we want to increase the amount of people going to college by lowering it’s price, the best way is to add more grants and lower tuition, rather than cutting interest rates on student loans won’t get more students in college and would just redirect the funds from grants and stuff. They suggest restructuring the process to an income-based repayment that would better benefit the people so they do not default on their programs any longer.

  14. Brendan Seery April 29, 2016 at 6:27 pm #

    As someone who is a college student, the student loan issue is close to me and my peers. The first paragraph was interesting in that everyone thinks that lowering interest rates on student loans will result in a fairer and more effective program. According to this article that sites empirical evidence and economic theory that lowering interest rates is a blunt, ineffective, and expensive tool for reducing loan defaults. When you examine the purpose of education through an economical perspective, you realize that education is an investment. Student loans work the same as a mortgage. The homeowner puts the house up as collateral, just as students put their futures up as collateral. Students take a loan, so they can earn more money and pay the bank back for giving you the chance to go to college. What I did not know was the student loan interest rates are tied to the Treasury bills. I just find it fascinating that what a reasonable person would conclude is not what behavioral economics says. Behavioral economics suggest that tangible and salient incentives at the moment of decision-making are the most effective in changing behavior. What it is saying is that tangible products impact decisions making more than anything. As it applies to student loans interest rates are not tangible, so it would have little impact if any on decision making. I agree with this theory. I notice I am less likely to spend cash instead of a credit or debit card even of the amount is the same. I can touch money, I can not touch electronic money. The solution is complicate and will probably not change because congress is filled with people who do not work together or ever reach an agreement.

  15. Matthew Gorski April 29, 2016 at 6:41 pm #

    This article, will it still makes sense, is a bit close minded. While the author argues that college loans are in investments that improve the life span and wealth increase of those who take them, she forgets that their benefits can also be the government’s benefits through tax increases. While student loans only pull a certain amount for a certain amount of years. Creating a free education and bumping up taxes can help the government create more profit from tax revenue. It is true to the fact that in the four years that students pursue college and take out loans they will lose a certain amount of profitability from the loans and interest rates. Although just as the author argues, individuals who go to college live longer, live better, and make more money. This situation creates an equation that the author misses. And as individuals are wealthier and live longer, they make more money. If college loans are reduced or made free, a tax increase would not seem so absurd. With this tax increase and the increase in public wealth due to rising salaries and time spent working, the government can create more tax revenue from the higher taxes on their now wealthier population.
    In a sort, this method is even more beneficial to governments as a college loan would only call interest for a certain amount of years, while tax revenue can be pulled from the higher salaries of workers for many decades. By making college a cheaper or more affordable investment, the government can also so see an increase in the number of people attending college and an increase in the average income of their population.
    The problem with the author here is she focuses too much of the aspects of interest profitability and how short reductions in percentages don’t affect the consumer much. What she fails recognize it is that by focusing more on an increased tax throughout the salary of a worker’s life, the government can make profits much larger than it would off the increased interest rates on a time-termed loan contract.

  16. Jason B. May 28, 2016 at 5:38 pm #

    College students themselves are investments in the future. Every time another person graduates from college the future of our country becomes a little bit brighter because they have a better chance of being successful in whatever career they choose to pursue. This will then lead to more spending, which can in turn improve our economy and reduce the amount of debt that our country is in. Due to this, I believe that interest rates on college loans should be reduced to almost nothing in order to take some of the financial strain off of college graduates.
    The author of this article, Susan Dynarski, on the other hand seems to believe that student loan interest rates are required in order to make college students a worthwhile investment. She also states that the current interest rates (that the majority of people spend most of their entire lives attempting to pay off) should stay the way that they are or just be slightly reduced to accommodate for lower earning individuals. I do not believe that this would help whatsoever because a slight decrease in interest rates is still going to be nearly impossible for most people to pay off. The only way that decreasing interest rates can help is if they are significantly decreased or abolished altogether. College students are already helping the economy by graduating, and by increasing student loan interest rates all we are doing is taking advantage of a group of people that could be improving our country if they were not so preoccupied with trying to pay off loans.

  17. Jacob Strauss May 28, 2016 at 10:43 pm #

    Attending college and graduating is nothing more than an investment in the future, as stated by the article, and it is absolutely correct. Student loans are loans that financial institutions make to people who are completely unqualified for a normal loan, which they then have to pay back at a higher rate of interest then a regular loan. This is done because with a normal loan, the borrower puts up collateral to assure the bank that if the borrower defaults, they won’t just lose all the money that was spent. Students generally do not have collateral to put up for the loan.
    The article explains that the proposition put forth, that being to cut student loan rates to distressed borrowers, would accomplish next to nothing. The reason for this being that the interest rates are already low enough that there is a negligible change when the borrower starts paying principal instead of interest. In the article the example shows that a interest rate drop of 2.29%(over half of the original interest rate of 4.29%) yields a ‘savings’ of just $20, lowering the monthly payment from $204 to $184. A savings of $20 doesn’t help borrowers that can’t make the payments of $204. This shows that the premise of lowering student loan interest rates isn’t going to aid anyone, and is in fact a ineffective and expensive option to lower payments for students, or parents of students. As stated, a better approach would be to implement a payment system based on income from the borrower or co-borrower so that payments can be made, but not at the detriment of the borrower’s livelihood. It benefits nobody to have a student to declare bankruptcy or have a ruinous credit rating because there is an economic downturn. Students now are future workers, and we should figure out the best way to implement that shift with a minimal effect on their lives.

  18. Joe Murdaco September 9, 2016 at 3:47 pm #

    This article brings up a very important point on whether the correct method of lower student loan debt and getting more students into college is to lower interest rates on student loans. This article mentions a few times how there have been studies that show lowering interest rates does not in fact raise student enrollment. This makes sense in a few ways. While I was trying to choose a college, I did not take into account the student loan interest rates. I did not even know what the interest rates were until after I applied for student loans which was not until my second year of college.
    The most interesting and important part of this article comes in the second to last paragraph where the author writes, “If we want to increase college-going by lowering its price, evidence shows that grants and lower tuition are the right policy tools” to give a call to action for the audience to think deeper at the problem. I agree with this statement wholeheartedly because when I was looking at colleges, I went with the one with the most affordable tuition and the college that offered me the most money for scholarships and grants. One of the first things that students and families look for when picking the right college is the cost of going there. Lowering tuition would be the most effective thing for getting more people to go to college.
    Cutting interest rates for students would not save them that much money in the long term anyway. In fact, the article determined that, “the ten-year payment on a $20,000 loan is $204 when the interest rate is 4.29%, and drops just twenty dollars (to $184) if the interest rate is cut to 2%” which shows that even cutting the interest rates by more than one half, the borrower does not save enough money to make a difference. Saving twenty dollars a month for people that really cannot afford the loans would not change their minds about going to that school and richer people would not really be impacted by this change. All said and done, lowering the interest rates is not the nest idea.
    One suggestion I would make about interest rates on student loans would be to make them fixed at the beginning of the year or when the student signs the paper for the loan. I do not think having the rates change throughout the year is fair. If everyone paid the same interest rates there would not be as many problems. It would not have to be fixed across the board per say but maybe have tiers for the amount the loan is.
    The article says that federal loans are used to correct market failures and if I am reading that correctly, interest rates for students are used to make money for the government and that’s not how it should work. If you look at the national student debt clock, we see that the debt is rising by $2,726 per second. Think about that. That number is absolutely absurd and something must be done to fix that. There’s no reason that student loan debt should be that excessive. One place to start would be to have each school look at their expenses and see what they are paying for that is unnecessary. Whether it be overpaid staff members or bills that can be lowered by looking for a better option, there is always something that can be done to help. This article is important for students, families and politicians to read to realize that lowering interest rates may not be the solution to the problems.

    http://www.marketwatch.com/story/every-second-americans-get-buried-under-another-3055-in-student-loan-debt-2015-06-10

  19. Daniel Cooper September 23, 2016 at 9:26 am #

    Education is key bettering a way of life. The life of many Americans are in a need for improvement. The problem in America is the fact that many people cannot afford the cost of a higher education. Many countries like Sweden, offers free higher education for people that need it. The life of many Americans need that change in order to benefit themselves and also make the country of American. Would lowering interest rates on student loans affect people going to college? I believe the answer to be yes.
    Investing into a person education can go a long way into the benefitting not only them but the society as a whole. The living expense of America are not getting any cheaper. With a higher education, the students are able to get a higher paying job that comes with better benefits. This can provide a happy life for the student that is getting a loan and his/hers future family. College is also not getting any cheaper; with the extra help of the government, the students will make this a possibility.
    The student loans also help the government the long run. The students will need to borrow some money in order the money amount of ten thousand dollars every year for the next four years. Then they start repaying back after they get a job. The student loan will only take four years to pay off. The government will make money off this loan. If the interest rate is fiver percent and they pay monthly, they will make back more than two hundred dollars from the student. This does not seem like a lot, but the government does not just loan to one student they loan out to millions of students. The money that they are bringing can be used for other expenses or reused for the upcoming students. The loans benefit both the student in the near future and the government in the long run.
    Lowering the interest for the government loans will help the students for repaying the loan and could make the government more money. As a college student I believe that more students would be going to college if the loans were not as bad or college was not as expensive as it is. As a student now, I do not think about the loans that I need to take out in order to come here to Seton Hall University. These interest rates could be the problem. Maybe students coming out college have a serious accident and they are not able to pay the loan. This will effect on what they can repay and what they cannot. Maybe students are not first on that list like a house and household needs like heat and water. The government will get their money back and the people will default on the loans. Lowering the interest rates will allow the students to pay back the loan in a faster or maybe more efficient way. That will lower risk for the government.

  20. Jason Salazar September 23, 2016 at 12:22 pm #

    This article questions if lowering the rates of student loans actually help out. They say that people think by lowering the loan debt, more people would want to attend college. The article does show that interest rates does not raise the amount of student that enroll to college. While people like saving money the most they can, the usually focus on what the college offers them or which one can be beneficial for them. I for one compared the colleges I looked into and compared the scholarships I was going to receive. While interest rates will be something people look into, it is not the main money issue they have.
    The cost of education is high for many colleges. While a higher education is something people want to have a better career, it is not something people can afford. While I understand that there are loans to pay off, sometimes people do not want to spend most of their lives trying to pay it off. This is something that the article is trying to show. The article says that the way we can increase people to go to college is lowering the price of tuition. For me that is the only way people can consider attending college. The amount of debt a student is put in after they graduate can be a lot to handle. If they lower interest cost they will not see a change in people attending college.
    The article showed that interest rate are not high at this time. It will not end up affecting someone as much as it would if they lowered tuition rate. The article gave an example of a “ten year payment of a loan of $20,000 is $204 when the interest rate is 4.29 percent.” If they were to cut the interest to 2 percent, they would have to pay $184. This means that the payment will only be cut down by $20, which is not a big difference. I do not believe that a $20 difference will change the mind of people to attend college. That is not a good way to make more people attend college.
    There are subsidized direct loans which are mostly for the lower income student. This means that they do not have to pay any interest during the time they are enrolled in college. I think this should be the case for every student. Just because the family is a high income does not mean they will pay it all off for them. They should give everyone a chance to pay them off when they graduate and are able to get a job and start working to pay off the loans and interest. The best way to help out the students with the interest rate is to set up an income based repayment plan. This will reduce the distress it cause but also help out. This article is trying to convince us that reducing the interest rate will have no change in us. It will not make people more interested in enrolling in college. There are only certain things we can do to help us out with the interest rate. The only way that people will be interested in attending college is to reduce the cost of tuition.

  21. Robert Andrew Luba September 30, 2016 at 9:26 pm #

    This article, by Susan Dynarski, explains why lowering the rates on student loans often is seldom the best choice. The most important reason, o would say, is that there is no evidence to support the argument that this would be beneficial for any of the parties involved in the borrowing process. Dynarski’s article is riddled with economic theory and historical records of loan rates and attendance that show that loan rates have, if any, very little bearing on attendance to college.
    She explains that interest rates increase the overall debt, but generally do not affect the monthly payment that needs to be made to fulfill them. Generally, whenever one makes minimum payments, they will not be any more or less than someone who has taken out a loan for more or less than them. If a person is employed, repaying in small minimum payments works across the board for large and small loans.
    So long as the rates are within reason, as Dynarski mentions of this being within two to ten percent, there is little do be done about the loans. Even a marginal difference in loan payments usually would only lead to finishing repayment within about five years of one another.
    I would suggest that cutting rates and finding ways to lower the cost of college lowers the stakes in a matter of speaking. Knowledge is power in American, and most other developed societies, and there is a very high price set on power. To cheapen college, takes a way a drive. When people invest a grand sum of money into a single source, they become invested themselves into it. Students at universities are notoriously lazy and sedate, this may be because they are not aware of the sacrifice they are making when they simply take out loans. When someone must depart with cash to attend university, the effect on them carries substantially more gravity. By adding interest, the sum of money is increased and the idea that a contract has been entered and they are now preparing to fund a service being done for them may set in easier. Debt is can have a motivational effect on an individual. This debt could lead to the drive one must have to attend and perform well in academics to successfully attain the job or career they will need to pay back their creditor.
    Dynarski also makes not that there is a more effective way of increasing enrollment in universities. She explains that it can only be done college by college in the form of lowered tuition. As I said before, lowering the cost of tuition would also lower the cost of the education one receives and can cheapen the education itself. This, however, does benefit the student who will take action on lower costs of their education. This would prove extremely effective to those who have earned scholarships and received grants. Between the three forms of price reduction, the student that has proved determination and drive through the acquisition of scholarships and grants would find his or her education the cheapest while still understanding the value.
    As adamant as I am on the continued emphases put on education and the pursuit of expanding knowledge, in order to make it more broadly acceptable as well as keep it from being looked upon in disdain, a cut must be made somewhere. people are becoming frightened by the cost and long term commitment of investing in education. this fear pushes many away from success and advancement that America needs. If the population becomes marginally less likely to pursue higher education, broad ignorance could become a serious problem and an infamous hallmark on the nation’s citizenry.

  22. Natalie Fiordaliso October 2, 2016 at 1:23 pm #

    In her article regarding cutting interest rates on student loans, author Susan M. Dynarski suggests that there are better ways of creating a more fair student loan program. To begin her argument, Ms. Dynarski notes that education is viewed as an investment and that the present expenses one incurs in order to obtain an education are essentially offset by the prospect of future, increased earnings which will lead to “improved health and a longer life” (Dynarski 1). To bolster her argument, a comparison is then made to that of a business deal, specifically a
    mortgage loan whereby borrowers put up a home as collateral in order to secure a loan with a lender for the purchase of the house. She then continues by addressing the role which the Government plays in filling the gap created by the “private market failure” (Dynarski 1) and the Criterion used for structuring a loans’ interest rate and “liquidity” goal.
    As Ms. Dynarski points out, and as many students enrolled in a four year college program already know, most of these loans go to lower-income students and come with a zero percent interest rate until 6 months after graduation when rates, now ranging from 5 to 6 %, as determined by Congressional discretion, will be applied to the current balance. As the article indicates, this approach became highly popularized during the 1970’s and 80’s, when banks were making up to 18% on mortgage loans and between 5 and 6 % on student loans. Consequently,
    student borrowing sky-rocketed and the government was left paying. But when considering that, current mortgage rates are now at 2 to 3 % while, as Ms. Dynarski writes, “(for) the 2015-2016 academic year, interest rates (on student loans) are 4.29 percent for undergraduate Stafford loans and 5.84 percent for graduate loans” (Dynarski 2), not much has changed in favor of the student.
    With this in mind, I agree with Ms. Dynarski in her assessment that the correlation between college enrollment and student loan interest rates is a spurious one, at best. Student loan defaults do not happen because of the interest rates associated with the loan; they happen because the majority of today’s students graduate with phenomenal debt and cannot find employment. Based on information from the article the minimum monthly payment on a 10 year loan at 2% would be roughly $184.00 per month. So, upon graduation, a student would have to land a job immediately in order to avoid default on the loan. It’s important to also note that defaulting on a loan negatively affects a person’s credit score, which also affects the ability to secure a lower rate on a car loan or qualify for a mortgage. In fact, many employers now use a person’s credit score as a basis for considering job applicants. And so, a vicious cycle is set in motion.
    I again agree with Ms. Bynarski’s conclusion that lowering the cost of tuition is the right approach. In fact, I feel that from an investment perspective, Congress should increase incentives for students who chose to begin their undergraduate studies by attending community college for the first two years of their higher education as the debt many would incur would be significantly reduced. In addition, this business plan would create a new level of competition between 2 and 4 year institutions which would likely drive down the cost of tuition and decrease
    the overall default rate. Furthermore, Congress could enact legislation which would incentivize companies who hire 2-year graduates with additional tax breaks. In the end, such action would result in more students becoming contribution factors to the economy rather than a burden to the government while companies could benefit from cultivating a well-educated employee base of
    workers with skill-sets that are directly applicable to the specific needs of industries.
    Whether or not Congress heads the call and steps up to fix a problem it helped to create is yet to be seen. However, trends already show that 4 year colleges and universities are beginning to feel the pinch. I know from recent personal experience that many would-be students are refusing to follow the “status quo” and are choosing the 2-year approach, instead. Furthermore, they are attending in-state institutions and commuting rather than living on campus. The saddest part of this issue is that while Congress continues to drag its feet millions more students continue down the same dead-end path each and every year. A change needs to come…and fast.

  23. kaitlyn healy October 13, 2016 at 10:15 pm #

    The price of college is a concern for everyone and student loans at times are the only means for some students to have the opportunity to go to school. This article by Susan Dynarski discusses the struggles that face students and how the advertisements for lowering your interest rate may not be as promising as it looks. I found it interesting that the 1970’s and 1980’s is when the student loan crisis started and it was a good option for younger people to take loans because mortgage rates were so high and student loan rates were at eight percent. Eight percent in todays world seems so high. The debate is congress is to lower interest rates for these loans.

    The question I had was why does the government want to get involved with student loans? The article answers it by saying it is an investment. When students graduate they have higher earnings, healthy lifestyles and live longer but the article also goes on to say that when students are in school they need money for more than just tuition, they need money for books, spending money room and board and at the same time there is lost wages because most students aren’t working because of the workload. The government gets involved because private loans are difficult because they have no collateral for student loans; with a mortgage you have a house. So now the government gets involved and they have more control over loans because they have access to students future earnings.

    How do these loans work or the better question is how should they work? Should the interest rates reflect just what it takes the government to process these loans or does the government benefit from them. Apparently some loans are very low interest rates for qualifying students and it helps them for college expense. While others are higher rates and the interest and payments start when college is complete. Today government student loans are at 4.29 percent and there is discussion over lowering that rate. The question is if you lower the rate will it increase the number of students enrolled in college and the article goes on to say that that is not typically what will happen. The article documents the use of behavioral economics that states if something is not tangible then it doesn’t play into the decision process. When a person is making a decision about college they aren’t considering what the implications it will be four years later. What students do not realize is that this decision can affect the rest of their lives. The idea of lowering interest rates makes little sense because it’s a false hope. A loan I based on principal and the interest is what is paid down so changing the rates affects these loans very little. Another idea the article stated was an interest based repayment system, so you pay the loan as you earn. It’s a set amount of time like a mortgage and you pay as you can which helps against defaults. Of course the answer I believe is to lower tuition cost and perhaps give colleges and universities incentives for keeping their cost lower, but here is another issue. When I go out to eat I might want the lobster but if I don’t have the cash I order a hamburger, all these people my age have a “dream school” they want to go to but if you can’t afford it find a school in your price range or a school that is wiling to help with financial aide. I was fortunate enough to get a scholarship but the truth is I worked so hard to get that, my parents put out a lot of money in trainers and college showcase trips, and now most students can go back to their rooms and students but I have a full time job, a job I love and I am very passionate about. If I didn’t have this scholarship I don’t think I would be here because the price is way to high for my parents and I wouldn’t want to start my life as a college graduate in the hole by two hundred thousand dollars.

    I look back to my high school and I don’t understand why some kids went to college. They were horrible students who didn’t understand themselves and had no idea what path they wanted to take in life, but yet the culture in Colts Neck, New Jersey is all the kids go to college. College is not for everyone, and if you have no idea what you want to do with your life. …Don’t waste money, go get a job, go to a community college and see what interest you, and go to a trade school. Why can’t this society understand this? My high school did not promote any of these things and that I sad. And just side notes, if a politician tells you college will be free don’t believe it. It’s impossible and it would ruin our economy, think about it!

  24. Joselito Abarca October 14, 2016 at 8:34 pm #

    Attending College is a major investment that is a risk. Investments with the higher risk have the higher return. The benefit is that the student will have greater job opportunities in the future, live longer and improve their health. The majority of families cannot afford to pay for college out of pocket, therefore they rely on loans. The turn to federal and private lenders. Federal loans offer a fixed interest rate or none at all. However, the interest rates for private lenders are extremely high and most students will end up paying double the tuition. The issue presented by Susan M. Dynarski is whether or not lowering interest rates will increase enrollment. As the article suggests, lowering interest rates will make loan payment more manageable however it will not play a pivotal part in student enrollment. Lowering interest rates will benefit those who have no trouble paying the loan. Less people will also default, however not by a major margin. Dynarski argues that there are other alternatives to attracting prospective students. She believes that “If we want to increase college-going by lowering its price, evidence shows that grants and lower tuition are the right policy tools”. This is true because when I was analyzing potential colleges I looked at the tuition and the financial aid packet. I did not take into account the level of interest rates. As a current college student, the prices we are paying for higher education are atrocious. The major dilemma college students are faced with is the massive debt they have accumulated through interest after graduation. The prices of college used to be a few thousand dollars and have since grown significantly. The high prices are making prospective students reluctant to pursuing higher education. Many students are graduating without a job and have to pay this massive amount of money. I plan on doing a few internships in order to potentially gain a full-time offer. However, nothing is guaranteed. I know plenty of college graduates have not found employment yet. I am investing in education in the hopes of securing a full-time job. Nowadays, if students have no internships under their belt it is difficult to find employment. My parents thought it was a good idea to take on a loan so that I would value my education and become a responsible adult. In the long run, loans benefit students and the government. The students gain an education and the government is able to help others fund their education. In high school, students were lazy because the government would pay for their education. Believe it or not, debt can make an individual to become motivated. This is a major problem that needs to be solved. If this country wanted to continue to be a major power in the world, more people need to become educated. The US has fallen from its place as a leader in math, science, and technology. I am extremely disappointed that the issue of student debt has not been a major topic in these presidential elections. If the US wants to go back on top, the system of higher education needs restructuring.

  25. Jose Moreno February 10, 2017 at 1:10 pm #

    Let us put it this way, I have absolutely zero loans that were taken out to help pay for my tuition because my family and I are so damn afraid of the financial reproductions. No payment plan, amount of minimal interest, or guarantees could have convinced my family or I. Do I regret going to such an expensive school knowing that I am paying my entire money’s worth? That is as if someone is asking me if I regret not having to worry about having to pay off student debt as soon as I graduate. It is something that not everyone has and I know my parents have and are working extremely hard to make this happen for me. Now, would I and or my family have considered student loans and or interest assuming they were more reasonable than now and include significantly smaller interest rates? Most definitely, we would have. Student debt is such a crushing, crippling thing to bear on such a young person’s shoulders or even worse, on his or hers family’s shoulders. It is way too much to ask for a recently graduated kid who may or may not have a job within the first 3 months of graduation and even if the kid did get a job, he or she knows that 97% of those paychecks for the next few years at their new dream job will go towards paying off their student debt. This would be the time of our lives where we begin living comfortably, work hard at our profession and this is definitely around the time where I would start saving large portions of money to benefit me down the line. It is something I know I will be able to do after I graduate but can the majority of college students in America say the same? Our youth and economy through my perception appears to constantly be going in circles. Students take out large loans, get their degree, and then spend the next ten to fifteen years paying off their debt. They do not really get to start their lives until years after they should have. It is a constant cycle that our students keep going in, it is as if they do not graduate until they are thirty or so years old because their whole life following graduation is completely centered around paying off their debt. If we want to get ourselves out of this cycle, we must start by doing the easiest, simplest, and most beneficial thing for our people not for our schools governments and country when it is viewing things through the perception of their business and money centered minds. They need to make it easier on us with lower interest rates and costs after graduation, they are profiting largely while us young adults are forced to live paycheck to paycheck. We and everyone around us know what has to be done in order to ensure the consistent growth and progress of our country and youth but is our country willing to help at the cost of some of their money or is that too much to ask?

  26. Hakim Felder February 24, 2017 at 12:59 am #

    Education is very important in a person’s life. It is not even a doubt a lot of investment that comes with it. Teaching how to survive in today society. The more we can educate our youth in many diverse ways, the better we would be as a society. It is hard to educate the youth because most of them are not motivated to excel in academic achievements. In the business law class, I am taking my teacher talks about how technology is taking over the world. We must understand how to use it. It all about preparing for a better future. Most parents invest in the children at young ages so they have money to help pay off the loans their child owes Depending on the school you go to student loans could be very expensive. That is the money a student owe the school they are currently attending.
    In this article, they talk about why governments lend student’s money in the first place. It is because “it creates costs in the present but delivers benefits in the future. When students are in school, expenses include tuition, school supplies, and lost earnings. Benefits after school include increased earnings, improved health, and longer life. To pay the costs of their education, students need cash.” It is basically like an input for a greater output. The government wants the student to do their best in school so they give them money to attend. Even if the student does not do so well the government will still receive the money neither way. It is a wining situation for the government. The federal Loan limits private market failure, which is what the government does not want to occur. According to Investopedia, Market failure describes any situation where the individual incentives for rational behavior do not lead to rational outcomes for the group. Put another way, each individual makes the correct decision for him/herself, but those prove to be the wrong decisions for the group. In traditional microeconomics, this is shown as a steady state disequilibrium in which the quantity supplied does not equal the quantity demanded.”
    One thing that really stuck out to me was that statics, “Today, interest rates on federal student loans are tied to Treasury bills. The 2013 Student Loan Certainty Act links interest rates to the Federal 10-year Treasury rate, plus a margin. For the 2015-16 academic year, interest rates are 4.29 percent for undergraduate Stafford loans and 5.84 percent for graduate loans.” Loans go to student below the average income rate referred to as the subsidized direct loan. If the student were in college then no money would be added. It would only begin it add annual interest at a yearly rate.

  27. Christian Cox February 24, 2017 at 4:31 pm #

    According to the Huffington Post, the amount of student debt has tripled since the year 2004 and has now accumulated to one trillion U.S. dollars. You should be wary of taking out student loans because they do not go away. Students loans can be discharged in bankruptcy only if you are able to show that it would cause you “unique hardship.” To be qualified for your debts to be considered a “unique hardship” you must show you will be unable to pay your loans now but also that there is little to no likelihood of being able to pay them in the future. You essentially have to show that you are not worth the creditor’s time. Student loans can hold you back as well. According to the American Student Assistance, found in their report in 2016 that forty two percent of college graduates delayed moving out of their parents’ house because of student loan debt, and seventy percent claimed student debt is the only reason they could not afford a down payment on a home. Student loan repayments interest rates are much higher compared to most other types of loans. It is clear that student debt cripples the advancement of outgoing college graduates, which means it is emphatically important to lower their interest rates. Lowering interest rates will make a college education a financial possibility and generate more citizens that are educated. We often hear phrases about how important a college education and the importance of staying in school, so then investing in the youth of the next generation of taxpayers deserve a fair rate on their investments in their education. College counselors always tell impressionable young adults to apply to their dream schools and boast about the affordability of student loans. This is a major factor in the one trillion dollars in debt that has accumulated. Normally, when someone takes out a loan, it is a very serious and well thought out action. One must be absolutely certain they will be able to pay the loan back. Forbes’s writer, Josh Freeman once wrote, “individual student loans are, in essence, akin to the ‘anti insurance.’ Rather than spread the risk, they concentrate it on the individual who has to bear all the downsides if something goes wrong.” High school students should not have to faced with a decision this critical at a such a young age in their life. It is a gamble for most people and has proven to ruin potentials. It is a problem that needs to be addressed, coincidentally it is affecting the age group that does not vote. It is clear that this a problem for young people so younger voters need to voice their opinions and actually go to the polls. If anything is going to change, we should be marching for lower rates not arguing who the president is. We need to do something productive rather complaining about who gets to help the elderly to try and be reelected. It is obvious that student loan rates are too high and it is also obvious that action needs to be taken.

  28. Josh Luchon February 24, 2017 at 8:19 pm #

    This article is a must read for any college student because it shows how corrupt the current system is. I’m not normally outspoken about conspiracy theories, but I think college is entirely too expensive and unnecessarily so. Someone who buys a Nike shoe should expect to pay inflated prices to keep the margins wide, but not a college student trying to make a life for themself. College is so expensive that even someone who has full tuition payments laying around in cash would be foolish dump that much liquidity, which for the majority of students means that loans are inevitable. College tuition is insanely high, and in addition to tuition, students have to pay for housing, food, and textbooks. I love the Seton Hall bookstore, but there is no universe in which is it acceptable to rob students at gunpoint with their insane prices. As if that wasn’t bad enough, here’s the kicker: interest. Every time I go to the cafeteria I think about how I am paying interest on the food that I eat and every time I walk into Boland, I get visibly aggravated thinking about all of the interest accumulating on my $13,000 per year housing cost. I’ll be the first one to say I understand that life is expensive, but I feel that college students regularly get taken advantage of.

    I’d like to circle back and talk about how I pay interest on the food that I consume. My meal plan is around $2,000 per semester, which comes out to an extra $1,091 over the life of the loan. Keep in mind this is only for one year’s worth of meal plans. If that is not taking advantage of students, I don’t know what is. We can’t cook in the dorms and eating out is expensive and unhealthy so the next best alternative is the meal plan. The school knows they are basically the only game in town for residents so they can charge whatever they please. I am quite sure I would get even angrier if I saw the food service’s margins.

    In addition to unbearable meal plan prices, housing expenses almost equal that of tuition entirely. To live in the lovely Boland hall costs me a whopping $13,000, and at 4% that translates into a total cost of $15,794. This cost is completely unjustifiable considering the size of the dorms, which I am technically only entitled to half of. Surely, you can imagine the distress that ensues when my $16,000 half-dorm room is cranking out steaming hot air at an uncontrollable pace in August. But not to worry, the basketball coach makes a million dollars a year and isn’t that what college is all about?

    After considering all of my frustrations regarding the cost of college which even without interest is nauseating, I turned to the author for suggestions about how to lower costs. The math does not work out for lowering interest rates, which only leaves lowering the principle costs, i.e. Tuition, housing, food, and books. I agree with the author that the best way to lower the cost of college is to convince institutions to lower prices.

    There is no doubt that colleges operate like any other business with their main goal to make money. This goal is counterintuitive when the supposed purpose of said institution is to provide education. The socially constructed monopoly that is college runs on the fear of failure instilled in college students everywhere. We are taught that the only way to live the American Dream is to go to college and sell your soul to the banks.

    I am in full agreement that college is an investment in the rest of my life, but there needs to be some sort of reform. As the author makes perfectly clear, the burden of decreasing costs falls squarely on the colleges themselves, not on the lenders. I love Seton Hall and I am proud to be a student here, but that doesn’t take away from the necessity to make quality education more affordable.

  29. Timothy Wiamer February 12, 2018 at 3:03 pm #

    The article begins by asking the rhetoric question: Are lower interest rates the best route to a fairer, more effective student loan program? From some research, it has been proven that this is not an economical way to help students with their student loan debt. In order to understand how the student loan mess started, the article states that we need to understand why the government lends to students in the first place and it comes down to this: education is an investment. This is a saying that all of us should be familiar with. The rationale is that while education creates cost in the present, it will deliver benefits in the future. When business deals are made, the borrower usually puts up collateral in order to fund an investment. This is very complicated to do with student loans. There really isn’t anything a student or recent graduate can put up. They can’t put up their degree; that just doesn’t make any sense. And so here lies the problem. So the government gets involved. Now the question the article asks is: Given that federal loans are intended to correct a capital market failure, how should they be designed? What interest rate should be charged? Currently, interest rates for federal student loans are tied to Treasury bills. Basically, each loan differs based on the year in which the loan originated, but are then fixed for the life of the loan. One reason that it is believed that a lower interest rate won’t make a difference is because in the grand scheme of things, when you pay a loan back with an interest rate of 4.29% versus 2%, the twenty something or so dollars does not make a difference in seeing if someone can afford to pay the bill. Really the only option I see that will help graduates with their student loans is to start paying when you graduate, even if you work a menial job and it’s not the dream job you want. No matter what loan you are offered when you need to pay your tuition, it’s going to have an interest rate that you don’t necessarily want. But you need to pay your tuition so you will take it. Once you graduate, enter into an income based repayment plan, especially if you did not land that dream job out of college. Once they see how much, or how little, you are making, your payments will be small. And while yes you still have to pay that larger sum eventually, at least you are making payments and it looks good for you. This is also better than defaulting on your loans or going into forbearance. So I do agree with the article that cutting rates on student loans does nothing.

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