Education Dept. Reaps Profits from Student Debt

Friday, November 22, 2013

While President Barack Obama has lauded the importance of helping students afford higher education, his Department of Education has made billions of dollars in profit off student loans.

 

During the last fiscal year that ended on September 30, the Education Department reaped more than $42.5 billion in profit from federal student loans, the second highest ever after 2011’s total of $47.9 billion.

 

If lawmakers and Obama had not agreed over the summer to temporarily lower student loan interest rates, the department’s 2013 profits would have reached $50 billion and set a new record, according to the Congressional Budget Office.

 

The Education Department has made so much money off student loans that these earnings comprised nearly 50% of the agency’s total outlays last year, the biggest share in 16 years. Education Secretary Arne Duncan has been able to request fewer dollars from Congress for his department’s budget because it is so flush with cash from student loans.

 

At the same time, the administration “has increased the amount of Pell Grant funding available to students thanks in part to the reduced cost of federal student loans, making the arrangement appear as if one group of students is subsidizing another,” Shahien Nasiripour wrote for the Huffington Post.

 

This development has not pleased Democrats on Capitol Hill.

 

Senate Majority Leader Harry Reid (D-Nevada) said over the summer that members of his caucus “don’t think there should be deficit reduction based on the backs of these young men and women who are trying to go to college.”

 

Senator Elizabeth Warren (D-Massachusetts) told the Huffington Post: “This is fundamentally about our values and what kind of country we want to be. With college costs exploding and students being crushed by more than a trillion dollars in debt, I believe we should invest in our students—ot make obscene profits off them.”

 

Numerous U.S. economic leaders have cautioned that the enormous student loan debt in this country (totaling $1.2 trillion according to the Education Department), and the high payments that those indebted must continue to pay, are damaging the recovery because borrowers are less able to purchase a home or make other financial purchases that can help fuel the economy. Also, loan defaults are rising, compounding a troubling situation that may last for years.

-Noel Brinkerhoff

 

To Learn More:

Federal Student Loan Profits Help Duncan Cut Education Spending To Lowest Level Since 2001 (by Shahien Nasiripour, Huffington Post)

Final Monthly Treasury Statement of Receipts and Outlays of the United States Government (Bureau of Fiscal Service, Department of the Treasury) (pdf)

Interest on Student Loans to Give Government $34 Billion a Year in Revenue (by Matt Bewig, AllGov)

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