Their Relation to Higher Educational Finance
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16. Interest Rate
The Variation between the rates of interest charged on loans is as
great as the difference in the amounts of loans; 254 institutions report
rates of frora no interest to 8%. Thirteen institutions have progressive
rates.
The time at which interest Starts can he taken into consideration along
with the rate charged. The 254 institutions reporting sum up as follows:
Interest from date of loan 193
Interest from date of leaving school 35
No interest 26
Total 254
There seems to be no reason for exempting students from paying
interest on loans granted. Not paying interest or paying anything below
the commercial rate is the same as accepting a gift. No able-bodied, selfrespecting
student wants to receive that kind of help. There is no reason
why the interest should not start from the time the loan is made. So far
as the rate of interest and the time at which it begins are concerned,
Student loans should be handled exactly in the same manner as commercial
loans.
17. Security for Student Loans
The only security which the Student has is himself, and the only
measure of his ability to pay is an estimate of his future financial success.
The requiring of collateral or signatures is not good because the Student
should be placed on his own responsibility; an honor note is much to be
preferred to a collateral or endorsed note. In order to insure the loan
fund against heavy losses due to poor loans, some form of group guarantee
should be devised. The grouping will be much more effective if it is done
among groups already in existence such as the College dass, the College,
the corresponding dass in different Colleges, and the alumni. It is the only
form of security which lends itself effectively to student loans.
18. Term of Loan
The term for which loans are granted differs widely in institutions;
110 institutions report maturities from graduation to five years after and
from one year from date of loan to ten years after.
In determining the term of the loan it is possible to apply the same
principles as prevail in investment banking and in commercial banking.
The short term loans are for emergency purposes and should constitute a
small proportion of the loans made. The long term loans are made to
