Student Loans’ Profit Scheme: How To Stop The Government From Exploiting Students’ Misery

Elizabeth Warren has a smart plan to rein in student loan interest. But here's the real answer to our debt disaster

In the latest volley in the ongoing debate over what to do about student loans, Sen. Elizabeth Warren recently introduced a bill that would allow borrowers to refinance old student loans with a federal one at today’s lower interest rates (i.e., 3.86 percent, 5.41 percent or 6.41 percent, depending on the type of loan). The bill, of course, offers the rate cut to address the staggering volume of student loan debt and increasing default rates, while also seeking to address recent revelations that the federal government is “reaping profits” on its growing portfolio of student loans.

Although at first pass, cutting interest rates seems to be a sufficient response to excess profit-making interest, Warren’s bill will not and cannot fully eliminate the problem.

Given the ineliminable possibility of federal profits, what students borrowers need is legislative assurance that any excess revenues generated from the student loan program will be cycled back into services and programs for student borrowers.

There is some disagreement about the numbers, but the Government Accounting Office (GAO) recently estimated that the government will generate $66 billion in profit on the $454 billion in loans it originated between 2007 and 2012. The GAO estimates that for every $100 in student loans the government issued to recent borrower cohorts, it may generate between $13 and $16 in profit after all administrative and write-off costs are accounted for.

These numbers depend on any number of assumptions — how the economy is doing, and student repayment rates, among others. They are, at best, an attempt to predict a hazy future. But the predictions demonstrate the real possibility for billions in federal profits.

In the latest volley in the ongoing debate over what to do about student loans, Sen. Elizabeth Warren recently introduced a bill that would allow borrowers to refinance old student loans with a federal one at today’s lower interest rates (i.e., 3.86 percent, 5.41 percent or 6.41 percent, depending on the type of loan). The bill, of course, offers the rate cut to address the staggering volume of student loan debt and increasing default rates, while also seeking to address recent revelations that the federal government is “reaping profits” on its growing portfolio of student loans.

Although at first pass, cutting interest rates seems to be a sufficient response to excess profit-making interest, Warren’s bill will not and cannot fully eliminate the problem.

Given the ineliminable possibility of federal profits, what students borrowers need is legislative assurance that any excess revenues generated from the student loan program will be cycled back into services and programs for student borrowers.

There is some disagreement about the numbers, but the Government Accounting Office (GAO) recently estimated that the government will generate $66 billion in profit on the $454 billion in loans it originated between 2007 and 2012. The GAO estimates that for every $100 in student loans the government issued to recent borrower cohorts, it may generate between $13 and $16 in profit after all administrative and write-off costs are accounted for.

These numbers depend on any number of assumptions — how the economy is doing, and student repayment rates, among others. They are, at best, an attempt to predict a hazy future. But the predictions demonstrate the real possibility for billions in federal profits.(salon.com)

Student Loans’ Profit Scheme: How To Stop The Government From Exploiting Students’ Misery 2014-05-15T21:39:00-07:00 Rating: 4.5 Diposkan Oleh: Unknown