Student Loans: The Billion-Dollar Profiting Business

“If we want America to lead in the 21st century, nothing is more important than giving everyone the best education possible – from the day they start preschool to the day they start their career.” — President Barack Obama

By Wiha Powell

The majority of Americans view education as the key to a lucrative career and a comfortable lifestyle, but the constant indebtedness of student borrowers has become a looming financial crisis, which Washington fears would put a strain on the already shaky economy. In response to such fear, the current Administration is attempting to provide affordable education for all.

But with the rising cost in tuition and student loan interest rate expected to double from 3.4 percent to 6.8 percent on July 1, higher education still remains out of reach for millions of Americans.  Instead of making higher education more affordable, it is becoming more expensive for students. The result: adding more to the existing $1 trillion student loan debt, a number that overshadows all household debt except for mortgages.

The most disheartening part about this ordeal is that the federal government is making an enormous amount of profit off millions of struggling students. According to the Congressional Budget Office’s February 2013 Baseline Projections for the Student Loan Program, on every dollar loaned, the government will yield more than 36 cents in profit for 2013. In 2014, it is projected that the government will yield a profit of 12.5 cents per dollar loaned through the Federal subsidized Stafford student loan program; 33.3 cents through the Federal unsubsidized Stafford student loan program; 54.8 cents through loans to graduate student; and 49 cents on parent loans.

The government is expected to make billions of dollars in profit from student loans. According to Sen. Elizabeth Warren (D-Mass),

http://www.tuition.io/blog

“The government is expected to profit $51 billion off student loans this year, which is more than the annual profit of any Fortune 500 company and about five times the profit of Google.” It is outrageous that the government is making such an enormous amount of profit off the very service that should be affordable. It’s just plain wrong and as Sen. Sherrod Brown (D-Ohio) said, “Wall Street, student loan servicers and now the government are reaping profits at the expense of students… when everyone is benefiting from student loan policy except, students and graduates, we have a problem.”

The fact still remains that there is already a $1 trillion in outstanding student loan debt, which is constantly growing. Furthermore, more than 85 percent of those loans are from the federal government in which graduates are currently paying a record relative interest rates in an economy where the borrowing cost for consumers has fallen for everyone except student debtors.

It is clear that the student loan crisis needs to be under control. The current crisis is not controlled by the traditional market forces; instead it is inflated by third-party intervention, including the Department of Education that generates enormous profit by cornering the student loan market. Therefore, it is high time our policy makers make use of the education funding by allocating the money to low-and moderate-income families in the form of grants rather than loans. Such a move will demonstrate that our policy makers are willing to make a commitment in moving student loan and student aid policies away from a billion-dollar profit gaining business, and towards a system that enables every American to have access to an affordable higher education.