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.

studentloanmanBut 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),

“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.

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10 responses to “Student Loans: The Billion-Dollar Profiting Business

  1. Mike Griffith

    It should not be legal to give out an interest bearing loan with no risk. The government is just handing out as many of these loans as possible because the system is fixed. If you take out one of these loans and you go into default you are not able to file them under bankruptcy. Not only can you not file them under bankruptcy but the government will garnish your wages to collect the debt. These student loan programs are considered “financial aid.” To call these programs financial aid is misleading. When the borrower assumes all risk it becomes a scam. Upon graduation you become the governments property.

  2. Pingback: Student Loans: The Billion-Dollar Profiting Business | Eradicate the Evil Elite!

  3. Pingback: US Gov’t Profited $51 Billion Of Student Loans, More Than Any Fortune 500 Company « Commoditie Futures

  4. Meg

    Your quotes do not line up to an specific source. The Elizabeth Warren quote is not directly in the Boston Globe article.

  5. 'Thew

    Sarah, do you really think this would be a national problem of such enormous proportions, and an impending economic crisis, if it were all down to a little common-sense money management? Do you really think it can all be solved by people getting marketable degrees and working summer jobs when annual tuition bills at public universities start to rival median yearly income in the U.S.? Considering that the current president of the United States didn’t manage to pay off his student loan debt until he wrote a bestselling book, I think you’re oversimplifying this more than a little bit.

  6. Christopher

    Don’t live above your means. Don’t assume you will get a job because you went to school. Don’t equate being taught what to think is the same as how to think. Learn what the truth, the way and the life is and be free.

  7. Sarah

    1) Go for a degree that is WORTH the investment.
    2) Start working in HS and SAVE SAVE SAVE.
    3) Work part time in college, and full time over the summer.
    4) You don’t have to eat out, buy all the electronics, take spring break trips, vacations, have a car, etc….
    5) Stop whining about borrowing money if you don’t even try to pay for it yourself.

  8. Hi Dez, thanks for reading the blog and commenting. Please note that we provide hyperlinks to any reports that are included in a post. If there is specific content that you noticed did not have a source, please let us know and we are more than happy to provide. We love hearing from our readers.

  9. Dez

    You should really cite your sources.

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