Student Loans. Student Loans are becoming an issue for higher education students in general. According to the New York Post (2011), two-thirds of all undergraduates have student loans obligations, and that number continues to grow. Without a true long-term solution to higher education funding, individual borrowing costs could surpass mortgage loan obligations in twenty years (New York Post, 2011).
Before July 1, 2010, students who needed to borrow money had to access federal loans through third party financial leaders (i.e., banks). Banks were allowed to charge fees and a higher interest rate, than the rate they borrowed it at, based off two lending benchmarks. Those benchmarks were the Prime Rate and the London Interbank Offered Rate (LIBOR). Fortunately, the federal government changed that policy in 2010. Now, when students need federal loans, they are able to get them directly from the federal government through the schools financial aid office (FinAid, n.d.).
Under today’s standards, students are charged an interest rate that is similar to the standards before July 1, 2010. Thus, the real different was cutting out the third-party lenders’ fees and the third party participants. However, one thing the federal government could do to assist students is treating them like they do banks. Under the discount window program, banks are able to borrow money from the federal government at the fed funds rate. Currently, that rate is -0-%. Essentially, this is free money to the banks. They borrow at 0% and charge others 3-6% more, in today’s time. However, why should students not be able to borrow at the fed funds rate? If this was possible, then each student could be able to save thousands of dollars over the life of their loans. Thus, reducing the burden of their overall obligation, and giving them more discretionary income. If this were possible, society could make a dent in the borrowing issues most students and families face.
FinAid (n.d.) Retrieved from, http://www.finaid.org/loans/
New York Post. (2011). Burden of college loans on graduates grows. Retrieved October 25, 2011 from, http://www.nytimes.com/2011/04/12/education/12college.html
