Student loan debt is one of the largest burdens of modern society. Graduates are leaving school in deep debt and under incredible pressure to find high paying jobs. Even if they get lucky with employment, they still often struggle for years to pay for their education. Since so many people are saddled with student loans, it may seem like the best thing that could happen is that the current interest rate of 3.4% stay the same. According to William Bennett, former Education Secretary, this could lead to college becoming less affordable.
Why Low Rates Can Be Dangerous
While the idea that government subsidized rates on student loans for the poor instead of middle class raises the hackles of many families, the fact is that low rates on these loans can cause tuition rates to increase even further. It is the same effect that caused such problems in the mortgage market earlier this decade.
In the early part of the 2000s, low mortgage rates made it easier than ever for many people to buy homes that would normally have been beyond their means. This led many homeowners to get in more debt than they could handle and caused a near collapse of the market.
How Low Interest Rates Could Hurt Students
Low interest rates seem to be a blessing to college students. They make it more affordable for students to attend college, creating a higher demand for educational services. This high demand allows students to boost tuition. When this happens, students may be making lower monthly payments, but will be paying much more overall.
The other side of the debate is whether higher interest rates would have the desired effect of making colleges control tuition rates. It seems that most college students are willing to do whatever it takes to get a degree. As student loan debt and tuition rates both rise, there is no doubt that something has to give.