<p>In the world of private lending, interest rates are set with degree of risk in mind. 'That’s why people with good credit scores often qualify for better rates, and why a person with a weak credit score might be charged much higher rates. For unsecured loans, most consumers are borrowing at rates of 15% +, because that is what the credit card companies charge. Those of us who can afford it make a point of paying our cards in full every month - so we are getting -0- interest plus whatever cash back or airline miles we’ve signed up for – but it is far more typical for a young person without cash reserves to be carrying a balance. So in that respect, a rate of 7% can seem pretty good. </p>
<p>I think the bigger issue is not what interest is charged, but just the fact that we’ve come to the point where college is unaffordable to many, and a whole generation is taking on the type of debt for college that, at least in my generation, was reserved for home-buying. At any level, the long-term interest payment do function as a type of tax on the privilege of having attended college (whether or not one earned a degree) – and I do think there are some very serious and significant social policy ramifications to that, especially an environment where wages have been stagnant for years. </p>
<p>I don’t think there’s an easy fix, because the root issue is the cost of a college education. To a certain extent, the more that the government is willing to lend, the more that the colleges will charge. So addressing student loan interest rates doesn’t really solve the problem – in a way, it may simply encourage students to borrow more, in the same way that lower mortgage rates empowers home buyers to sign to buy more house for the same monthly payment.</p>