Government to rake in record profit from student loans

Kristy Currier, 26, of Detroit, pays $600 a month in school loans. Her job doesn’t pay enough to cover loan payments plus living expenses. REGINA H. BOONE/DFP

Detroit Free Press

DETR OIT The U.S. govern­ment projects to make more money off student loans this fis­cal year than ExxonMobil, Ap­ple, JPMorgan Chase or Fannie Mae made on their respective businesses last year, a new analysis shows.

According to the Congres­sional Budget Office, the federal government projects a record $50-billion profit on student loans this year. ExxonMobil made $44.9 billion in 2012, ac­cording to published reports, making it the most profitable company in the country. And if Congress doesn’t stop rates on some loans from doubling on July 1, that profit will increase.

“I can understand private companies making profits off student loans — part of mine are private — but it doesn’t make sense for the government to be making huge profits off the backs of young students just trying to make themselves em­ployable in a terrible economy,” said Kristy Currier, 26, of Detroit.

Currier said she pays be­tween 3.9 percent and 10 per­cent interest on various loans, which total about $75,000.

The record-high profits on student loans come during a time of historically low interest rates on home mortgages and car loans. While a homebuyer can get a 30-year mortgage at about 4.5 percent interest, the federal government is charging as much as 6.8 percent interest on unsubsidized student loans.

When Nathan AuBuchon graduated from Walsh College last fall, he did so with $35,000 in federal student loans. The 31­year-old Commerce Township, Mich., resident, who co-owns a real estate company, pays $172.66 a month in loans.

He doesn’t have a problem with the government making money from his loans.

“I see it as the taxpayers who are making the money, and I have no problem with that. The taxpayer should be compensat­ed for their opportunity cost and the risk of loss of their money,” he said.

The Congressional Budget Office’s May look at the federal student loan account forecasts the federal government will make more than $173 billion in profits from student loans over the next 10 years.

Those projections are higher than the Obama administra­tion’s projection — which fore­cast a $34.3 billion profit this year versus the CBO’s $50 bil­lion projection. Using the ad­ministration’s projections, the government is making an aver­age of about 18 cents in net profit from every dollar it lends. The government makes prof­its by lending money at rates higher than it borrows. The CBO projects the government rate will be 2.1 percent during 2013. Loan interest rates for borrowers run from 3.4 percent to 7.9 percent.

The profitability of the stu­dent loan program is under in­creased scrutiny amid political debate over the cost of higher education and borrowers’ debt levels.

The interest rate on the fed­erally subsidized Stafford loan is set to double on July 1. Con­gress is debating a number of bills designed to hold that rate closer to 3.4 percent.

The Congressional Budget Office projects that keeping the loan rate at 3.4 percent on sub­sidized loans would cost the government $41 billion over the next decade, while eliminating the subsidized program would increase the profit by $49 billion.

Budget projections from the Obama administration show an expected profit of $26.3 billion in 2014, with a slight uptick in the profit rate to nearly 19 cents for every dollar loaned in 2014.

“I think the government should cover costs, but certain­ly not profit off (student loans),” said U.S. Rep. Tim Wal­berg, R-Mich., a member of the House’s higher education sub­committee.

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