Apr 15, 2014 02:31 PM EDT
U.S. Education Department Predicts Massive Profit From Student Loans, Why Some Borrower Advocates Are Worried
The U.S. Department of Education is turning in a major profit and has forecast making about $127 billion over the next decade from federal student loan borrowers.
According to the Huffington Post, the Education Department (ED) reported the forecasted profits with the Congressional Budget Office. The rates of federal student loans are also expected to rise next academic year.
Under a new law tying the customer's rate to what it costs the government to borrow, industry experts expected a higher price for borrowers later rather than sooner. However, borrowing rates are expected to be higher than they were the previous year starting with the 2015-2016 academic year.
The Consumer Protection Financial Bureau (CPFB) warned student loan borrowers of a "jump," but it is not yet clear by how much the rates will increase.
Education Secretary Arne Duncan could use the profits to help reduce borrowers' loan debts. Some student groups and borrower advocates have speculated the ED will struggle to do this because they rely on student loans for profits in the first place.
"This is a profit-making machine for the Education Department," Chris Hicks, of the Debt-Free Future campaign for Jobs With Justice, told the HP. "The student loan program isn't about helping students or borrowers - it's about making profits for the federal government."
The ED is already under fire for renewing its lucrative contract with Sallie Mae, a student loan lender investigated by government agencies and individual states alike for alleged violations of borrowers' rights. The violations suggest Sallie Mae has contributed heavily to the growing student loan debt in America by making it difficult to repay loans on income-based and other customer-friendly plans.
Under the new law, student loan rates were expected to remain unchanged short-term and rise as the economy is expected to recover. Starting in 2015, an undergraduate will pay 5.72 percent interest on average to borrow from the federal government.
The ED did not comment for the story.
"The public needs to be concerned about a government agency acting like a bank," Hicks said. "The Education Department has a profit motive."
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