student loan profits

Who is getting rich on student loans?

Michael Lux Blog, Student Loans 0 Comments

With well over a trillion dollars in student loan debt, where is all of this money ending up?  With so much money changing hands, who gets the profits?

Today we will look at the different participants in the student loan market and cover some of the many different ways companies are generating income from student debt.

The Colleges

Perhaps the biggest beneficiary of the trillion dollars in student loan debt is the colleges themselves.  The ease of getting student loans has flooded the market with consumers willing to spend top dollar on their education.  As a result, college prices have skyrocketed.

At some schools this means a massive endowment or money for huge construction projects.  At others, it means major profits for the corporations running the for-profit schools.

The Banks and Lenders

Private student loan lenders are able to make a nice profit on student debt.  With student loans being nearly impossible to discharge in bankruptcy, and consumers fresh out of high school and not financially savvy, there is huge opportunity for income… even if some borrowers end up in default.

The Loan Servicers

For companies like Navient and Nelnet, servicing federal student loans is huge business.  The loan servicers get paid for the service they provide, not for the money they lend.  That means that even if borrowers are not able to pay, the servicers can still do their job and still collect their check.

Debt Collectors

When borrowers cannot pay, the debt collectors get involved.  These are the companies that specialize in tracking down borrowers, making phone calls, and even pursuing litigation.  With many borrowers in default, debt collection is big business.

The Federal Government

This area of profit is up for debate.  Senator Warren of Massachusetts claims the government is making billions on student debt.  With programs like student loan forgiveness, and many borrowers in default, this has been an area of debate, but there is ample evidence to suggest that Uncle Sam is turning a profit on student loans.

The Consolidation Companies

Student loan consolidation has become a huge business.  This is especially the case for the lenders who consolidate federal loans.  These companies are targeting the top borrowers (those with high income and high credit scores) and offering lower interest rates than the federal government.  Essentially they are taking the lowest risk loans from the federal government and turning profits.  The fact that the list of companies in this business continues to grow and become more competitive only serves to show how much money there is to be made.

The Scam Artists

With so many people hurting from student debt, and confused, there are many wolves out there in sheep’s clothes.  These “businesses” often charge money for free government programs.  Student loan desperation has led many people to make unfortunate decisions.

The Status Quo

There are also huge groups of people profiting by making sure the system doesn’t change.  Lobbyists charge huge sums of money to influence Congress, and many Congressional leaders stuff their campaign war chests from companies profiting on student loans.  This can happen both at the federal and state level.

The Bottom Line

Student loans are big business.  There is no denying this fact.  Borrowers with aspirations to change the law or improve the system would be wise to consider to consider how many people and companies have a huge financial interest in student debt.