News Column

Report: Feds to continue profiting on student loans until at least 2024

February 10, 2014

By David Jesse, Detroit Free Press



Feb. 10--Student loans will continue to churn profits into the federal government's pockets until at least 2024, a new study by the Congressional Budget Office says.

The loan program, which booked $41.3 billion in profit in 2013, makes money on the interest rates that are charged over the cost of the government borrowing the money.

Congress enacted a law last summer that will tie the interest rates to the cost of the federal government's borrowing, plus a slight increase. That move is expected to lower student loan rates in the short run, but won't drive the profits away, the CBO said in its annual look at the government's money over the decade.

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That's got Hillary Williams, 23, a recent Michigan State University graduate, steamed.

"I've got all these bills coming and have to live with my parents and they are just making so much money," Williams, who now lives in Warren, said. She has $23,000 in federal loans and has a public relations job at a metro Detroit company. "I think they should break even, but it's just wrong that they are making money on it."

The report is the latest in the steady drumbeat of government reports pointing out the profit. Earlier this month, the Government Accountability Office said it was projecting the federal government to make $66 billion off loans made 2007-12.

The reports come as average student loan debt climbs. Nationally, the average 2012 college graduate owes $29,400. In Michigan, the average 2012 college graduate owes $28,840, up 5% from a 2011 graduate.

President Barack Obama is pushing an effort to create a college accountability and ranking system in hopes it will force colleges to lower costs.

But there are lawmakers who don't believe the administration is acting strongly enough.

"This is obscene. The government should not be making $66 billion in profits off the backs of our students," U.S. Sen. Elizabeth Warren, D-Mass., said in a statement when the GAO report was issued. "This report reinforces what we already knew -- instead of investing in our children and their futures, the government is squeezing profits out of our young people and adding to the mountain of debt they will spend their lives struggling to repay."

Warren and eight other U.S. senators committed to wring government profits out of student loans and address the $1.2 trillion in outstanding student loan debt they say is crushing families and putting a strain on the economy.

"We cannot bury our heads in the sand and pretend the profits don't exist, or use accounting tricks to make them disappear," Warren said. "It's time to end the practice of profiting from young people who are trying to get an education and refinance existing loans."

Warren said student loan debt is leaving new graduates with a suffocating obligation that can stifle their futures. She has filed what she calls a "skin-in-the-game bill" that tries to pressure colleges to keep costs down for students and ensure they get a meaningful diploma when they graduate. As part of the bill, colleges that don't meet on-time graduation rates and other criteria must refund a portion of a student's loan.

The administration has pushed back, saying repeatedly that the profits are only seen because of accounting measures and that the department does not really make money on the loans.

"It's actually neither accurate nor fair to characterize the student loan program as making a profit," Education Secretary Arne Duncan said during a July conference call with reporters after the Free Press and other news media reported on profits from student loans.

But their argument isn't swaying those paying the bills.

"There needs to be a law that they (the federal government) can't make money off loans," said Mandy O'Neal, 24, of Ann Arbor, who has $21,000 of debt from her years at Oakland University. "I understand banks making money off it, they are businesses. But the whole point of the government offering the loans is to help people afford to be able to go to college. Why not lower the rates even more until the government covers its costs and stop there."

Contact David Jesse: 313-222-8851 or djesse@freepress.com. The Associated Press contributed to this report.

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Source: Detroit Free Press (MI)


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