US Government Profits $41.3 Billion From Student Loans

The US government made enough profit from student loans in the last year to provide full Pell Grants of over $5,600 to 7.3 million students. But, like many government financial issues, accounting methods complicate the story.

The $41.3 billion student-loan profit for the 2013 fiscal year – which ended on Sept. 30 – is actually down by $3.6 billion from 2012, but still enough to out-profit all but two global companies, Exxon Mobil and Apple.

The numbers give pause since estimates show more than $1.2 trillion in student loan debt exists in the US, more than Americans owe on credit cards.

Yet officials and experts point out that there are various ways of accounting for how the US Department of Education runs the student loan program, and that calling this pure profit is misleading.

The profit number is ultimately tallied by the Congressional Budget Office (CBO) and in what way the CBO chooses to account for the cost of the loan programs can differ. The CBO has traditionally used a procedure mandated in the Federal Credit Reform Act (FCRA) of 1990 to assess the costs of the government’s six loan programs. The method can produce large numbers cited in news reports of late about the wild “profits” off student loans.

But the CBO has acknowledged FCRA doesn’t account for cost of “market risk,” or economic activities that affect if and how borrowers pay back loans. For example, when the economy is in a downturn, borrowers are more likely to be behind on payments, affecting the government’s recovery rates and the overall costs of the program for the Education Department.

“It’s actually neither accurate nor fair to characterize the student loan program as making a profit,”Education Secretary Arne Duncan said in July after new reports on profits from student loans.

Link: http://rt.com/usa/student-loans-government-profit-292/