What is the purpose of interest rates in an economy?

Some people have argued that student loans should be interest-free and anyone should be able to obtain student loans at a 0% interest rate. Others have argued that student loan interest rates should better account for differences in the creditworthiness of borrowers by considering different characteristics of students (e.g., students in a major with strong employment prospects may receive a lower interest rate than those in a major with weaker employment prospects). 

How do you think interest rates should ideally work in a student loan context? Please provide some rationale for your position.

 

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The purpose of interest rates in an economy is multifold Allocate Capital Interest rates help to allocate financial resources efficiently by signaling ... View the full answer