Long-term savings

Lower loan rates could build the workforce

One of the greatest concerns facing college-bound students is whether or not they can afford their education. Tuition has become extremely expensive and in order to alleviate this huge burden, many students utilize student loan programs set up by the federal government. The financial assistance of these programs often has given students the ability to pursue a higher education. This week, the U.S. House of Representatives debated the future of many college-bound students who rely on student loans. At issue was the amount of the student-loan rate reduction in the Higher Education Act. The rates for student loans, unlike other loans' rates, are set by Congress rather than the marketplace - leading to hot debates between lending companies and government officials. Lending companies do not want to see the rates of these loans drop because that would result in smaller profit margins. But representatives in favor of granting greater access to higher education want to see loan rates reduced. A compromise should be struck with the financial needs of students in mind.

The compromise that was reached last week in the House Committee on Education and the Workforce would lower student-loan interest rates to 6.8 percent while they are enrolled in school and to 7.4 percent after graduation. This compromise could be considered a victory for those who support the ideas of higher education and its societal benefits. Lawmakers on both sides of the issue must realize that people who receive a higher education are beneficial to society. For instance, the knowledge one gains at an institution of higher education will be applied in future employment, therefore benefiting all fellow employees and the employer. Granting easier access to higher education by reducing financial strain could not only benefit those who receive it, but also the individuals around them and the market. Higher education has a positive spillover effect for all of society.

On the other hand, legislators must be careful when reducing these rates so that lending companies do not bail out of the loan programs. In essence, lawmakers must walk a fine line between helping people afford higher education and reducing rates to a point where loan companies decide that it is not financially beneficial to participate. Thomas Butts, the University's associate vice president for government relations, says that two-thirds of all students who attend Michigan state universities and receive loans have direct loans that lenders do not control. Lenders who decide to pull out because of the reduced rates will probably not have a significant effect on students who attend state schools, including the University. But it is still a concern that representatives must keep in mind when dictating the amount of loan-rate reduction by which the lending companies must abide.

In an effort to keep lending companies happy with the proposed low rates, the federal government will use taxpayer money, in the form of a subsidy, to offset some of their losses. The government holds the arduous task of keeping all sides happy so that more students will have access to post-secondary education. If tax dollars must be used to achieve these goals, then the federal government should allocate the money. The benefits of education are hard to quantify, but a well-educated workforce is something for which all countries should strive. If passed, this reduction in student-loan rates will take a small step toward achieving that goal.

03-20-98