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Student Loans: Who Should Pay?

3/21/2014

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The Heritage Foundation recently published an article that discusses the inefficiencies of Senator Elizabeth Warren’s proposal to hike taxes on those earning more than $1 million in order to “use the tax revenue to let debt-ridden students refinance their college loans.” In other words, Senator Warren claims that raising the taxes on those with higher incomes will lower the interest rate for students. Brittany Corona, an assistant researcher for Heritage, made an excellent point when she observed that this approach will only hinder universities from making their tuition affordable. Instead it will “enable universities to raise prices, knowing students can return to the federal trough for more financing.” Not only does the senator’s proposal affect the outrageous cost of tuition but this approach to fund federal subsidized student loans will also raise the interest rates; logically, if the price goes up so will the interest. More specifically, as a former student with expanding debt in college loans, it seems absurd for one to borrow from the federal government who then makes a show that students cannot afford to pay back loans with the interest rates they have established. The government, through Senator Warren, is now demanding that someone whom most likely already had to pay off their own student loans and whom is working hard for their own money, should now be responsible for paying for your and my interest rates. Why should it become someone else’s responsibility to pay the government for you or I to acquire a higher education? The Huffington post wrote, “ We took a big step toward making student loans more affordable in 2010, cutting banks out of the equation and dispersing student loans directly from the federal government”. Please do not misunderstand me, I am an advocate of lower interest rates on student loans. However, if the Feds had left student loans alone and kept the loans in the private market (banks) where one could take out a personal loan, the price and the interest rate would be much lower; the market would have to be competitive in order to entice students to borrow. Thus, the interest rate would have stayed regulated through simple supply and demand – Economics 101.

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