Should the Federal Government be Making Massive Profits Off Student Loan Debt?

Donald Trump is not happy with the federal government making billions off the student loan.

“That’s probably one of the only things the government shouldn’t make money off — I think it’s terrible that one of the only profit centers we have is student loans,” says Trump in an interview by the Hill.

Trump is not alone. The 40 million millennials who are drowning in student debt aren’t happy as well. While the student loan debt is bleeding these young adults dry, the US government was earning $66 billion last year from this debt.

More shockingly, the government is set to churn profits from student loans potentially until 2024, says a recent study by the Congressional Budget Office. CBO projected that the federal government will be earning around $127 billion over the next ten years.

The government’s profit remains stable despite the enactment of a law two years ago tying the interest rate to the cost of the federal government’s borrowing, with a little increase. Through this move, the government was expecting to reduce the student loan rates for a short period of time.

The figures are enough to convince even the most simple-minded person that the government shouldn’t be engaged in the student loan business. In the past, it was thought that the private sector would not provide student loans because of the uncertainty surrounding the borrowers’ ability to earn and repay. So the government provided them guarantees. Eventually, however, the president signed another legislation ending subsidies for private banks which offered federally guaranteed student loans. Because the federal government gave better terms than most private lenders, it became the lender of choice for most borrowers.

After all, how could the government betray its own people? But the massive profits which the government is making off student loan tells us a different story. While millions of borrowers are losing their battle on student loan debt, the government is waving a flag of victory.

Good thing there are lawmakers who believe the administration should be doing something about this absurdity. One of them is U.S. Sen. Elizabeth Warren, D-Mass.

“This is obscene. The government should not be making $66 billion in profits off the backs of our students,” she said in a statement when the Government Accountability Office report was issued. “This report reinforces what we already knew — instead of investing in our children and their futures, the government is squeezing profits out of our young people and adding to the mountain of debt they will spend their lives struggling to repay.”

Warren together with eight other U.S. senators pledged to squeeze government earnings out of student loans and deal with the $1.2 trillion student loan debt, which they claim is devastating families and harming the economy.

Warren has filed a bill which will put a pressure on colleges to keep college tuition down and make sure the education they receive is worth all the money they’re paying for. The bill also entitles borrowers to refund a portion of their student loan when their school fails to meet on-time graduation rates and other criteria.

Another senator, Chuck Schumer of New York was equally distressed with the GAO report. He said in a statement, “We need to be investing in higher education for our students, not making money off of them.” After all, it’s the banks business to make money off student loan debt, not the government. The core task of the government should be to ensure that the young people of America receive higher education and not make any profits from them.



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