Sunday, June 23, 2013

Yahoo News: Who makes money off your student loans? You might be surprised

Story at Yahoo examining some of the current financial arrangements our government has put in place for students to be able to go to post-secondary schools, excerpt:

But today, nearly three years after the government cut commercial banks out of the federal student loan market, banks aren’t the only ones profiting from people seeking a degree.
Now that the Department of Education is responsible for lending to students directly, the government is making big money off the nation’s scholars. Current students and recent graduates currently carry $1.1 trillion in outstanding debt—more than the nation's combined credit card debt.
The Congressional Budget Office in February estimated that the Department of Education will make $35.5 billion in profit in 2013 from student loan programs. But that number was just revised this month to $50.6 billion in profits—a 43 percent increase for the year.
"Who's making the most money right now is the federal government," Tobin Van Ostern, deputy director of the student advocacy group Campus Progress, told Yahoo News.
It's worth noting that the $50.6 billion is just an estimate—loans are unlikely to be repaid at the estimated rate, and other factors are likely to change, like the cost of servicing loans. And profits are expected to decrease in coming years—in 2019, the government's profit is projected by CBO to be about $4.85 billion.
But the 2013 projection puts the Department of Education's student loan profits above those of last year's most profitable company, Exxon Mobil, which made $41 billion, according to Forbes' rankings.

Current policy continues to place a big additional  fiscal yoke on our young ones in this regard, only now it is DIRECT.

More "banker hate" will not lead to an effective remedy to this continuing mistaken fiscal policy.


Anonymous said...

We're thinking along the same lines here Roger. I posted the following comment on Brad DeLong's latest post on QE:


QE without an expansionary fiscal policy is a contractionary policy. As we know, the Fed has been making abnormally large "profits" recently. That's bad for the economy. The central bank probably should not be earning profits during a recovery, since that means more money is flowing into the Fed from the private sector than is flowing out of it. (All of those MBS have cash flows attached to them, and after the Fed buys one the cash flows to the Fed instead of to the previous private sector owner of the MBS.) It's true that the Fed remits much of the profit to the Treasury, but Congress has used those profits to pay down debt rather than expand public sector consumption and investment.

So Unconventional Monetary Policy + Crazy Republican Congress = Unconventional Net Government Contraction.

The biggest enterprise in the known universe - the United States Government - has been using both its fiscal arm and monetary arm in a joint project to hoover dollars out of the private sector while shrinking its own contribution to demand, employment and production.

I don't understand why people have such a hard time remembering that QE programs are programs that purchase *financial assets*, and thus they remove dollars from the economy as well as injecting them. If I hear one other news report that describes QE as "pumping money into the economy" my head is going to explode.

Unknown said...

Not "banker hate" - "usury for stolen purchasing power including from the borrowers" hate.

But let's assume that lending, instead of just spending, fiat into existence is morally legitimate for the monetary sovereign UNDER SOME CIRCUMSTANCES. Then surely poor students are to be given interest-free loans? If not outright grants?