To the student in financial straits, Harvard gladly extends a helping hand. Loans up to $400 are freely granted to those who, by some unforeseen emergency, cannot pay their term bills in full. With an interest charge of 5 per cent, these loans pay the University a higher return than the average security in its portfolio.
Harvard follows sound banking policy in charging 5 per cent interest on loans that are, for all practical purposes, unsecured. If the borrowing student is a minor, his promissory note has no validity in court; and although, legally, the student's bondsmen can be held responsible for his debt, the University has refrained from such action as unjust to the bondsmen and injurious to its public relations. In effect, the student's good will is the only security behind the money he borrows from Harvard.
But when measured by other than the banker's standards, the present charge on student loans is unjustifiable. It is calculated to yield profits--profits that swell the endowed loan funds, and also the revolving funds as far as losses through defaults are covered. Harvard does not milk its needy students to erect fancy laboratories and hire costly lecturers. But it holds its debtors responsible for building up its loan funds--a function that should be left exclusively to the donors of the future. At present, there is no shortage of loanable money; and considerable surplus margins are left over each year, particularly in the graduate schools.
Borrowing from the University should never become a gratuitous privilege open to anyone who has taken too many weekends. Where no definite rate has been stipulated by the donor, 2-3 per cent interest should be charged to cover defaults and costs of administration. A rate higher than that is unnecessary, and places an unjust burden on those who can least afford to bear it. Five per cent may be good business, but it conflicts with the very purpose for which the loan funds were established.