Recently released records show that over the last year the Federal Government made a profit of $41.3 Billion on student loans. To put that number in perspective, over the same period of time, only Exxon Mobile and Apple recorded larger corporate profits.
In May, this website first addressed the topic of the staggering profits that the Federal government is reportedly making on student loans.
Since that time, we have seen numerous student loan proposals made by members of Congress as well as the President, and we have even seen the law on student loan interest rates change.
A common critique of the reported profits of the federal government on student loans is that it does not accurately reflect the actual costs of the loans to the government. In fact, it has been argued that the government is much closer to breaking even than what these numbers would suggest. In the words of Education Secretary Arne Duncan: “It’s actually neither accurate nor fair to characterize the student loan program as making a profit.”
As I’m not an expert on accounting I won’t try and pretend to understand the nuances between the various methods of calculating profits on student loans. It also seems strange to see such a precise figure because the government really has no idea how many of the loans that they handed out this year will be paid back. With an unknown percentage of students who will eventually qualify for student loan forgiveness, how is anyone to know how much money was actually made on these student loans?
That being said, even if we don’t know how much money the federal government is making on student loans, people seem to have a legitimate gripe about the process. Earlier this year, after much debate, legislation was passed setting the interest rates for federal student loans. A surprising part of the debate was the fact that profits of the federal government were not actually discussed. The debate in Congress revolved around what was “fair” for students to pay.
From my perspective, and I suspect the perspective of many other borrowers, the federal student loan program should not be a profit center for the government. When Congress sets interest rates on loans, the discussion should be, at what percent interest rate can we break even?
Bottom line: Numbers suggest that the government is making billions each year on student loans. Even if it is not entirely accurate, as a nation we ought to find a way to make sure that we are not profiting off of the young people who try and get an education.