Response to “Getting More Bang for the Buck in Higher Education”

I found the article “Getting More Bang for the Buck in Higher Education” to be very interesting. Until reading the article, I was unaware that such a sharp increase the interest rate on Federal Student loans is set to take place in July if an agreement between Republicans and Democrats is not reached. You questioned “If completion rates are already at an all-time low, how would increasing the interest rate help this?” I agree with you that increasing the interest rates would not have a positive impact on the rate of college completion. Considering that interest rates are the cost of borrowing money for students, it is not difficult to see why college completion will most likely fall with an increase in the interest rates on federal student loans. When students consider attending college they must perform a cost-benefit analysis to determine whether the benefits of a college education outweigh the direct and indirect costs associated with such an education. The interest rate on federal student loans is considered a direct cost of attending college. If the interest rate increases, the costs of attending college may begin to outweigh the benefits, thus causing some young adults to forgo a college education. An indirect cost that students must also consider when calculating the cost of attending college is the opportunity cost of not entering the labor force immediately after graduating from high school. When young adults choose to attend college, they are forgoing full-time employment opportunities and wages that they could earn without a college education. An increase in the interest rates on federal student loans will likely prompt young adults to seek full-time employment rather than go into debt in order to obtain a college education.

                In the final paragraph of your post, you state “if the government would control the tuition costs and keep the interest rates of the loans they offer at a lower level then the completion rates will fix themselves.” I agree with this point. I believe that if the federal government is concerned with making education more affordable for students, it should focus not only on controlling the interest rates of student loans, but also on encouraging colleges to find ways in which they can reduce their costs and ultimately, student tuition. Obviously, the services and educational opportunities provided by colleges are quite expensive. However, I believe that colleges could still reduce their costs if they employed better management in the allocation of their financial resources. For example, colleges could focus on eliminating some of the luxuries they provide to students, such as cable television and elevators in the dormitories. Colleges could also consider renovating current campus facilities instead of building entirely new facilities. I believe that if colleges focused their spending on student necessities as opposed to luxuries, they could better manage their financial resources and perhaps, reduce tuition costs for students.

                I am glad that you addressed the topic of interest rates on federal loans. If the federal government is truly concerned about the health of the economy, it should focus its efforts on providing young adults with greater access to a secondary education. A quality education is the key to a prosperous future.