Guess Who's Making Billions From Student Borrowers

PHOTO: Students protest the rising costs of student loans for higher education on Hollywood Boulevard on September 22, 2012 in the Hollywood section of Los Angeles, California. Citing bank bailouts, the protesters called for student debt cancelations.

So student debt is at an all-time high, which has subsequently worked out for the Department of Education, in that it's raking in an estimated $50.6 billion in profit for fiscal year 2013. That's up from $24 billion in 2012.

So just how big is $50 billion?

Consider that Apple Inc. recorded a profit of less than $42 billion in fiscal year 2012. As the Huffington Post noted, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported a combined profit of $51.9 billion last year, just slightly more that what the Obama administration is set to earn. Basically, it's a lot of freakin' money.

It's also impacting a lot of freakin' people. There are 37 million student loan borrowers in the United States with outstanding loans at an average of $24,000 per person. At least 15 percent of those borrowers can't even make a payment on time because they just don't have the money. So, how did we end up in this fine mess?

Here are a few reasons:

1. Lawmakers Who Don't Act: Officials at agencies from the Federal Reserve to to the Treasury Department have warned that student borrowing could have long-term impacts on things like homeownership and retirement savings. But that's what happens when a swathe of a country's population is paying off a lot of debt instead of investing what they're making into a home or a 401K. President Barack Obama has urged Congress to address this by, for example, tying interest rates to the government's borrowing costs, which means they would vary based on the market. Right now, Congress is the only entity that can change interest rates, regardless of how the economy is performing.

The problem is that, broadly, Lawmakers have had trouble coming to any agreement on how to address student loan issues, which has left student borrowers with an uncertain future.

2. High Interest Rates: The spread between the government's funding costs and the interest rates borrowers pay has never been higher, noted the Huffington Post. Some low-income students qualify for loans with 3.4 percent interest rates, but most are required to pay 6.8 percent interest, which is lining the administration's coffers with profit. And while lawmakers have introduced various attempts to keep those rates from rising, few of their proposals would help current borrowers. In fact, if they don't act now, interest rates on some student loans that currently sit at 3.4 percent are set to revert back to 6.8 percent in July. Congress voted last year to keep interest rates on Stafford Loans and some other student loans at the lower 3.4 percent interest rate but they only agreed to do that temporarily since lawmakers couldn't agree on how to address the issue in the long run. That's why the rates are set to double again in July unless they can work out a solution.

3. Lack of Understanding: The student loan system is a complicated, often overwhelming, system. That alone, can often lead to less than informed decisions. Take for example, that just 700,000 borrowers enrolled in the administration's Income-Based Repayment program, which helps some people reduce their monthly payments based on what they earn. But the administration estimates the program could help reduce payments for more than double that number, up to 1.6 million borrowers. The problem: Many don't know the option exists or don't know how to apply.

So how do we get out of this mess?

  • 1
  • |
  • 2
Join the Discussion
blog comments powered by Disqus
You Might Also Like...