Government Reaps Billions from Student Loans as Rates are Set to Double

Government Reaps Billions from Student Loans as Rates are Set to DoubleThe federal government is making billions in revenue from federal student loans, with projected revenue for 2013 at more than $36 billion — in part because of a scheduled July 1 doubling of Stafford loan interest rates.
Last summer, Congress approved an extension of the low 3.4 percent rate on federally subsidized student loans, avoiding a doubling of the rate on July 1. But that extension is due to expire again this July, affecting more than 7 million college students.
A coalition of youth and student groups Wednesday released an issue brief which shows the federal government will make:
»» 12.5 cents on the dollar for each subsidized Stafford dollar loaned,
»» 33.3 cents on each dollar loaned through the unsubsidized Stafford loan program,
»» 54.8 cents on the dollar through the Graduate PLUS loan program, and
»» 49 cents on the dollar for parent loans.
Next year, more than 19 million federal education loans will be made, totaling $108 billion.
“Students and families consider higher education as an investment,” said Ethan Senack, higher education associate for the U.S. Public Interest Research Group. “Yet federal student loan policy does exactly the opposite – and unless Congress acts, it’s about to get even worse.”
Until recently, student loan borrowers generated revenue for private banks and lenders, which were middlemen in the federal student lending program.
But in 2009, President Obama championed successful student loan reforms that removed the banks from the program and ended their high fees and abusive lending practices, the groups say.
But the student loan programs still serve to generate revenues from students.
This is happening after students have already gone through aid restrictions and limitations that have resulted in students contributing $4.6 billion to deficit reduction and 140,000 low-income students forced out of the Pell grant program.
“Congress continues to balance the budget on the backs of college students, sacrificing long-term investments in our future for short-term political points,” said Rory O’Sullivan from Young Invincibles, a student advocacy group that co-sponsored the report.

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