Is the Government Making Billions Off of Student Loans?

Although student loan reform is something that is often spoken about by the Obama administration, these new numbers are cause for alarm.

College debt is a serious issue facing many American students today. (Photo: AFP/Getty Images)

May 16, 2013· 2 MIN READ
Suzi Parker is a regular contributor to TakePart. Her work also appears in The Christian Science Monitor and Reuters.

If you are still paying off student loans, here is some frightening news.

This year the government is likely to turn a $51 billion profit from student loan borrowers—more than most major corporations in America. The forecast profit goes to the Department of Education, but it comes from student borrowers and their families.

This is surprising news considering Obama campaigned heavily on student loan reform.

“I’m definitely disappointed that the government has not lowered the interest rate on federally subsidized student loans, especially given the very visible and vocal concerns about rising tuition and lowered prospects for recent graduates,” Angela Hunter, a professor in Little Rock who is still paying off her college debt, told TakePart.

She doesn’t flat out blame Obama, but thinks he needs to be more of a leader on college debt.

“I feel as if he’s ignoring the issue rather than purposefully exploiting the profits garnered from interest,” she said.

Lara Brown, a political professor at Villanova University, said Obama is in a pickle on this issue. If he opens up the dialogue on this, it would look like he is defending the banks.

“Yes, politically Obama and the Democrats could lead on this for future borrowers,” Brown told TakePart. “And I think, if they were going to do something retroactive it is to re-allow for refinancing. That way the lender will get paid out. The lenders may find that there is a huge student refinance market, and that would be a smart thing for Obama to lead on.”

But Massachusetts Democratic Sen. Elizabeth Warren, who sits on the Senate banking committee, is charging forward on student loans.

“The fact that the government is now expected to profit $51 billion off student loans this year—more than the annual profit of any Fortune 500 company and about five times the profit of Google—is just plain wrong,” Warren said. “We should put an end to the practices that generate Fortune 500 profits off of our students.”

Warren, a firebrand on finance reform, has a few ideas of her own for college debt. Last week, she introduced her first bill in the Senate.

Warren wants the student loan interest rates at about 0.75 percent. This is the same level that the Federal Reserve gives major banks. Currently, student loan rates teeter around 3.4 percent. That could increase to 6.8 percent in July if Congress doesn’t act to keep loan rates low.

But unlike the politicians who simply introduce bills and let them languish, Warren has gone one step further. She launched a petition to put pressure on her Senate colleagues to take action on college debt. So far, more than 250,000 people from all over the country have signed it.

“The biggest banks in the country—the ones that wrecked our economy and cost millions of Americans their jobs—pay next to nothing on their debt, while students pay nine times as much,” the petition states. “That isn’t right.”

One petition signer wrote, “Students will be our future leaders, and they should not be ‘hamstrung’ with unreasonable interest rates. Are they not more important than Wall Street banks?????????”

Student loan debt has almost reached $1 trillion in this country, and more student loan borrowers are falling behind on their payments by the day.

Like everything in Washington, any student loan reform issue—including the $51 billion profit drama—will need bipartisan support.

“Any bill that would pass would need Republican support and it would have to address future borrowers and only future borrowers,” Brown said. “The one thing they could do, if anything, would probably be to create out clauses so people [who borrowed years ago] could refinance, but that creates a whole new set of problems.”

What's your solution for minimizing college debt for Americans? Share your savvy financial thoughts in the comments.