Their Relation to Higher Educational Finance 
101 
loan without interest he is in fact accepting a gift of $6, in addition to 
getting a loan without collateral. Six dollars is not a very large sum 
to add to his indebtedness and still it would change the color and put 
backbone into the whole transaction. If the interest charged is lower 
than the commercial rate, the Student is given the difference between what 
he pays and the commercial rate unless it can be shown that he 
is a better risk than the average commercial risk. To Charge less than 
the commercial rate of interest therefore, is the same as to make a gift 
of the difference and brings in the same objections which can be lodged 
against making outright gifts. No able-bodied, self-respecting Student 
wants to receive that kind of help. The experience of the Loan Asso 
ciation of the German Student Body, which has recently come into 
existence in Germany, has shown that students as a rule prefer to borrow 
any necessary money rather than to receive it as charity. This sentiment 
is growing among American students and there are groups of students in 
some of the American institutions that prefer loans at a commercial rate 
rather than anything less than that rate. The more enterprising Student 
almost invariably prefers a loan on a business basis to one made 
otherwise and also prefers such a loan to a fellowship or scholarship. If 
such a sentiment is not already ingrained in the Student, the university 
has a duty to perform in helping him to develop it, for when he encounters 
the outside world, this quality is one which will help him to succeed. 
The same reasons hold true in regard to the time at which the interest 
should Start. 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 in 
exactly the same manner as commercial loans. 
Security for Student Loans 
The different forms of security required for Student loans has been 
discussed in Chapter V and is referred to here for the sake of emphasis 
and completeness. As already stated, 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. To arrive at a decision as to whether 
a student should be granted a loan or not is a difficult task and one 
which can be efficiently performed only after much experience in judging 
people and especially in judging young people. Requiring collateral or 
endorsements 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 brought into 
use. This will not only decrease the losses, but will give a means of