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February 11, 2014

U.S. Will Earn $66 Billion From Student Loans

Thanks to our friends at The Chronicle of Higher Education for bringing this story to our attention.  

In an article by Mark Keierleber, the Chronicle notes that a recent report from the U.S. Government Accountability Office projects that the U.S. will generate nearly $66 billion in income from loans issued from 2007-2012.  The report, "Federal Loans: Borrower Interest Rates Cannot Be Set in Advance to Precisely and Consistently Balance Federal Revenues and Costs," highlights the difficulty in trying to predict what cost of future student loans will allow the government to break even on its loan program.  In short, the report could not determine if future income from the issuance of student loans will generate a profit or not be enough to avoid actually costing the government money.  Therefore, the report, required by the Bipartisan Student Loan Certainty Act of 2013, could not determine how much interest borrowers should be charged.

Last year the Congressional Budget Office estimated that the federal government will bring in $185-billion in profits on new student loans made in the next decade. As student-loan debt escalates, so does the amount the U.S. Department of Education is spending to administer the loans, an amount that jumped from $314-million in 2007 to $864-million in 2012, following changes that shifted lending from banks to the federal government.

Fluctuations in the actual and expected costs of the student-loan program over time make it challenging to set a particular interest rate that would consistently break even, according to the report. The report's authors also determined that frequent changes in the interest rate could help align program costs with revenues in the short term but would be confusing and would complicate efforts to be transparent to students.

To read the entire report, click here.

To read the Chronicle's informative article on the subject, click here.

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