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Government Books $41.3 Billion In Student Loan Profits


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Government books $41.3 billion in student loan profits

David Jesse, Detroit Free Press 11:08 a.m. EST November 25, 2013

Figures come as concerns mount about growing loan debt for students, graduates.

(Photo: Susan Walsh, AP)

Story Highlights

  • The government student loan profit falls behind levels of just two major companies: Exxon Mobil and Apple
  • Estimates show more than $1.2 trillion in student loan debt across the nation
  • This summer, Congress called for a study on the true cost of the federal student loan programs

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The federal government made enough money on student loans over the last year that, if it wanted, it could provide maximum-level Pell Grants of $5,645 to 7.3 million college students.

The $41.3 billion profit for the 2013 fiscal year is down $3.6 billion from the previous year but it's a higher profit level than all but two companies in the world: Exxon Mobil cleared $44.9 billion in 2012, and Apple cleared $41.7 billion.

STORY: Student loan rates will feed federal profits

"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. The department did not return calls or e-mails seeking comment this week.

The numbers track the entire fiscal year that ended Sept. 30. They come as concern continues to mount about the level of indebtedness by college students and graduates. Estimates show more than $1.2 trillion in student loan debt across the nation, more than the nation owes on credit cards.

Congress is expected to take a look at the issue in the coming months.

In September, the Senate Health, Education, Labor and Pension Committee launched a series of hearings to look at critical issues in higher education ahead of reauthorization of the Higher Education Act, which is set to expire at the end of this year. Among the issues being looked at are the student loans programs, according to Allison Preiss, press secretary for Democratic Sen. Tom Harkin of Iowa, who heads the committee.

'Profit' depends on accounting method

Projecting how much money the government will make — or have to pay in a subsidy — on those loans is a tricky, complex formula, based on a variety of factors, experts said.

The federal Credit Reform Act of 1990 set the way the government has to account for its loans. It measures the cash outflow as the disbursement of the principal loan amount and the inflowing money as the payments of interest and principal, minus amounts not paid, plus any fees the government receives from the borrower.

But there are those who say this is a bad way to measure and predict what loans cost the government. They like something called "fair

This summer, Congress directed the Government Accountability Office to conduct a study on the true cost of the federal student loan programs.value accounting," which they say does a better job of factoring in the cost of collecting delinquent or defaulted loans and looking at the risk taken by the government when it lends out money. They say there is actually little to no profit.

In his call with reporters this summer, Duncan did not get into which method of accounting he prefers, just that he believes the government isn't running the student loan system in order to make money, but rather to help students afford college.

Debt's effect on economy

Prospective students tour Georgetown University's campus in Washington, D.C., in July.(Photo: File photo by Jacquelyn Martin, AP)

The large debt numbers have sparked concerns about impact that debt is having on the nation's economy.

"(It) is a burden which is affecting, for example, the ability of many young people to buy a first home, affecting other purchasing decisions they might make, affecting obviously their overall financial condition," Federal Reserve Chairman Ben Bernanke said at a conference earlier this month. "To the extent that there's a lot of student debt held by people who are not working, it's obviously yet another drag on recovery."

Kelly Wilk, a December 2010 graduate from the University of Michigan-Dearborn, feels the impact of her loans all the time. She graduated with about $25,000 in federal loans and now owes slightly more than $22,000, with a monthly payment of $281.

"For some, this payment may not seem too bad," the 25-year-old Livonia resident said. "But for me, it is a huge monthly payment; it is pretty much a car payment or half of rent.

"It was especially difficult at first because I was unable to find full-time employment after college, yet I had to start paying my loans six months after I graduated. So there I was, working two part-time jobs and trying to pay off my loans, which eventually forced me to apply for deferment."

After two years of seeking full-time employment, Wilk said, she was able to land an entry-level job unrelated to her degree in communications.

Now it is slightly less difficult to make those payments, but certainly not the easiest," she said. "I have cut back on a lot of spending and only buy the necessities."

Loan rates expected to rise

A report issued in mid-August by the Department of Education shows that 57% of students received some sort of federal aid, and 41% of all undergrads had taken loans, up from 35% four years ago.

This summer, Congress passed a law tying interest rates on loans to the market. The law set rates for all the loans at different levels, but based them all on the 10-year U.S. Treasury rate and allowed rates to change each year.

For Stafford loans, both the subsidized and unsubsidized, the interest rate is the Treasury rate plus 2.05%, with a cap of 8.25%. Graduate student loan rates are the Treasury rate plus 3.6%, with a cap of 9.5%, and the parent loans are the Treasury rate, plus 4.6%, with a cap of 10.5%.

While offering immediate relief to students, those rates are expected to rise in coming years and give the federal government $175 billion in profits from student loans over the next decade.

That's got students who are paying steamed.

"Instead of making a profit on student loans, why doesn't the government try to help out the millions of students who are struggling financially and at the very least, lower the interest rates?" Wilk said "I don't understand how the government expects this generation to support themselves after graduation, starting out with a mound of debt and in a lot of areas, no job."

http://www.usatoday.com/story/news/nation/2013/11/25/federal-student-loan-profit/3696009/?sf19878423=1

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BO, you're more qualified to speak to this than I am, but my understanding of why the federal government charges such high rates, and why private financial institutions aren't willing to consolidate the loans at a lower rate for individuals, is that is is an unsecured debt. If you default, the government can't take my education away. With that being said, I don't know what would be considered an acceptable interest rate to protect the government and/or a private institution from someone defaulting.

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That article doesn't seem to take into account how much the US spends on it's own interest payments towards it's own debts. $1.2 trillion outstanding, at 3% interest, the government pays about $36 billion a year for borrowing $1.2 trillion. That eats up almost all of that $41 billion in profit. Your welcome China!

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That article doesn't seem to take into account how much the US spends on it's own interest payments towards it's own debts. $1.2 trillion outstanding, at 3% interest, the government pays about $36 billion a year for borrowing $1.2 trillion. That eats up almost all of that $41 billion in profit. Your welcome China!

Da fuq does that have to do with any part of this?

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Da fuq does that have to do with any part of this?

The government is in debt. Any money the government hands out, the government pays interest on because it's part of that borrowed pool of money that the US pays 3% interest on. In other words, if the government stopped handing out student loans and collected $1.2 trillion of the outstanding loans, that would reduce our debt and interest payments by $36 billion per year.

It's not a valid statement saying the government "profits" $41.7 billion on the student loan program when the government is having to pay interest on $1.2 trillion it has borrowed.

If you borrow a million dollars at 3% interest so you can lend it out and make 4% interest, you do not profit $40k on that million dollars. You profit $10k because $30k had to be paid to whomever you borrowed from to have that $1 million to lend out.

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Student loans payments just mean people have less money to spend on other things, so businesses suffer. Most people I know with student loans take short cuts like cutting the cable and go with Netflix.

My wife and have netflix, hd cable and a couple of movie channels for that exact reason. We don't have the disposable income to constantly go out and do things. We make do, and we're happy. But it would be ******* awesome if I didn't have to pay my studen loans.

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