Help Students, Help the Economy

In an ideal world, money would never be an issue. Important things like buying a house or receiving an education would be attainable to all. Unfortunately, our world is not ideal, and money is always an issue. Most people in the United States our age are focused on a major monetary hurdle: paying for a college education. Luckily for us, Harvard boasts one of the country’s best financial aid programs. Students are encouraged not to worry about affording their four years of college as Harvard strives to meet the financial needs of its students. According to the Harvard website, about 60 percent of Harvard college students receive financial aid from Harvard. That is a truly laudable state of affairs. Not every school has Harvard’s resources though; as a result, student debt in our nation has reached an all-time high, and something needs to be done.

Student loan debt in the United States today is greater than $1 trillion. This mammoth debt that is shouldered by the future of our country has a significant effect on our economy, both in the present and for the future. It is preventing graduates from spending money and investing as they struggle to pay off their debt.  We, as a country, need to do something to ameliorate this situation. Currently, the three major types of federal loans that students can take out are subsidized Stafford loans at 3.4 percent interest, unsubsidized Stafford loans at 6.8 percent, and PLUS loans at 7.9 percent. The interest rates on subsidized Stafford loans are set to double on July 1 unless new legislation is passed.

A few possible solutions have been proposed, including Representative John P. Kline’s plan to create a more permanent solution by tying student loan interest rates to the 10-year Treasury Note and Senator and former Law School professor Elizabeth Warren’s bill which would lower the interest rates to match those that banks pay. Kline’s plan would help prevent the doubling of interest rates on July 1, but would otherwise change every year and may rise to up to 8.5 percent. This would not help solve our existent problem.

Now let’s consider Warren’s bill. It is being promoted with a lot of brouhaha as Warren is getting students and supporters excited by bringing the “bad guys,” big banks, into the picture. According to her campaign, current interest rates on federal loans to banks are 0.75 percent, and Warren wants that to be the rate for student loans as well. The idea sounds fantastic and, if we ignore all the side effects, it would definitely do a lot to help bring down student debt and encourage the youth of our nation to get an education. If the solution were that simple, our country would not be burdened by so much student debt in the first place. Unfortunately, it is not that simple, and we cannot ignore the side effects. Matching student loan interest rates to match those of banks would cost our already broke government billions of dollars.

To help prevent the hit that our government deficit would be dealt, a compromise needs to be made. We can still lower student loan interest rates to match the rates that banks get; however, we would need to raise the interest rates that banks get from the federal government. By raising the rates on the incredibly large amounts that banks borrow, the difference lost by cutting student interest rates could be decreased. Also, student rates would not be lowered all the way to 0.75 percent, so not as much revenue would be lost by the government through subsidized loans.

Yes, banks borrow from the government in emergency situations and raising their interest rates may not just hurt the banks but the rest of the country as well if they consequently increase their retail and commercial lending rates. The issue of student debt is important and affecting our entire nation, and it is important for everyone to work together for a solution. Banks should be able to take a little increase in their rate because it will help them in the long run. If student have less debt to pay off, they will be more willing and more able to take out loans from banks for life necessities like houses and cars.

The entire country and its economy are hurt from the current situation with our student debt. Harvard students are not directly affected by it right now as we are safely protected by Harvard’s generous endowment in the comfort of our dorm rooms. However, we are all going out into the real world and will all be affected by this debt. It is important for Harvard students to be aware and for our nation to take action. Something drastic needs to happen if we want to change the course of our future.

Josephine Volovetz, a Crimson editorial writer, is a Molecular and Cellular Biology concentrator in Eliot House.