How Uncle Sam made $100 billion on student debt
The government has been borrowing money on the cheap and lending it out at a premium, reaping huge profits.
The Huffington Post reported Wednesday that the combination of low borrowing costs for the government and fixed interest rates for students generated $101.8 billion in profit for the Education Department over the last five years.
The department was expected to take in $33.5 billion from student loans made during the 2013 fiscal year, according to budget documents. The agency's Direct Loan program delivered a $24 billion profit on loans made in 2012 and nearly $27.5 billion on 2011 loans.
How does that work out? Simple. The government's funding costs, measured in the yield on 10-year U.S. Treasurys, has averaged less than 2% since the summer of 2011, thanks in no small part to the Federal Reserve's attempts to stimulate the economy.
At the same time, laws have kept the rates on Stafford loans made by the Education Department to undergraduate borrowers from middle-class households fixed at 6.8% since 2006. Students from low-income households can qualify for small loans at 3.4%, but the majority of government borrowers pay the higher rate.
The difference between Treasury and Stafford loan rates has drifted from 4.5 percentage points to 5.27 percentage points since August 2011. It's hardly the kind of lending markup enjoyed by Visa (V) or Mastercard (MA), but it's enough to make people notice. The White House is considering a variable rate for student loans that moves with the market, but it's still in the developmental stages.
Right now, both art school students and MBAs alike are being crushed by student debt. Deeply indebted doctorate recipients are seeking food stamps in increasing numbers. Roughly 284,000 college graduates are making minimum wage.
Even when graduates get a job, their debt doesn't get any less onerous. The Center For College Affordability and Productivity reported that nearly half of the college graduates from the class of 2010 are in jobs that don't require a bachelor's degree. A full 38% have taken jobs that don't even require a high school education. According to the Associated Press, that has dropped the median wage for college graduates significantly since 2000.
With all student debt adding up to $1.1 trillion, it's likely a good time to start discussing some solutions. In the meantime, the government has no problem watching the money roll in.
Lets hear it for our Great and Caring Government. You silly people believed that the President and the Democrats wanted to protect the middle class. The President, the Democrats and the Republicans all want our money.
BEND OVER AND TAKE IT UP THE AS*
people say don't borrow money to go into low paying fields but refuse to support things like higher taxes to pay teachers more. The world needs teachers so there are two choices pay them more or lower college costs. HOWEVER that will never happen because then the colleges will complain that they cant pay their employees, etc.
Be happy that people are willing to go 100k in debt to make 30k teaching YOUR kids
These lending programs can be great source of revenue for federal, state and local governments. and should be a model for implementing services across the board. This will effectively and ultimately eliminate taxation as a form of revenue. Public services should always be competitive and profitable.
My sympathy for those having difficulties with student loans is about non existent. When they signed the loan documents, they KNEW what the interest rate was. They also KNEW what their chosen career fields typically pay entry level employees. Only a fool would assume $20k in debt to get a degree where the starting pay is $30k a year....
Government -backed loans should be granted based on the applicant's field of study, the projected demand for people those skills, and the earnings potential in the career field.
The economy did tank, which just adds to the difficulties, but unmanageable debt is the result of poor choices.
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