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Federal Government Makes Billions from Student Loan Borrowers Yearly

For Immediate Release

Today, a coalition of youth and student groups released an issue brief demonstrating that the federal government is making billions in revenue through the federal student loan program. The report projects that student loans will generate over $36 billion in revenue in 2013, in part because of a scheduled July 1 doubling of Stafford loan interest rates.

“Students and families consider higher education as an investment,” explained 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.”

According to the brief, 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, over 19 million federal education loans will be made, totaling $108 billion.

Until recently, student loan borrowers generated revenue for private banks and lenders, which were middlemen in the federal student lending program. 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.  

But the student loan programs still serve to generate revenues from students, and students have already suffered from a variety of aid restrictions and limitations that have resulted in students contributing $4.6 billion to deficit reduction and knocked over 140,000 low income students 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.

Students are facing another decrease in aid on July 1, when the interest rate on federal subsidized Stafford student loans will double from 3.4% to 6.8%. Over 7 million students will be forced to pay $1,000 more per loan per year if the rate hike occurs.

Last year, President Obama and Congress responded to overwhelming public outcry by temporarily extending the current low interest rate. This year, the president is expected to put forth a comprehensive student loan reform proposal in his budget proposal on Wednesday.

“Rates on educational loans are excessively high compared to those on mortgages and other consumer loans,” noted Tiffany Dena Loftin, president of the United States Student Association, also behind the report. “Higher education should be more affordable than it is and we need our political leaders to respond.”

The issue brief can be downloaded here.

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U.S. PIRG, the U.S. Public Interest Research Group, is a federation of non-profit, non-partisan public interest advocacy organization that takes on powerful interests on behalf of its members, working to win concrete results for our health and well-being.

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