Huge Profits for Education

The U.S. Department of Education is forecast to generate $127 billion in profit over the next decade from lending to college students and their families, according to the Congressional Budget Office.

Beginning in the 2015-16 academic year, students and their families are forecast to pay more to borrow from the department than they did prior to last summer’s new student loan law, which set student loan interest rates based on the U.S. government's costs to borrow. The higher costs for borrowers would arrive at least a year sooner than previously predicted.

James Kvaal, a top White House official, last year dismissed the possibility that student borrowers would pay higher costs under the new law. The Consumer Protection Financial Bureau on Monday warned borrowers about a "jump" in rates.

The projection, made public Monday by the nonpartisan budget scorekeepers, provides the federal government’s best estimate of how much the government's student loan program will cost taxpayers. 

That the program is predicted to generate an average annual profit of about $12 billion through 2024 is likely to fuel calls for the Obama administration and Congress to take additional steps to reduce borrowers’ debt burdens, which the Education Department pegs at an average of more than $26,000.

The program produces a profit because the interest rate paid by borrowers exceeds the federal government’s cost to fund those loans and administer the program. The figure also accounts for loan defaults and borrowers’ use of flexible repayment plans that tie monthly payments to their incomes.

The Congressional mandated accounting method that determines the profit figure has been criticized by some experts, including the Congressional Budget Office. The Education Department in the past has disputed the use of the word “profit.”

Education Secretary Arne Duncan has used the profit to help his department reduce its cost to taxpayers to the lowest level since 2001, budget documents show. 

As Washington focuses on reducing federal expenditures, some experts and student groups said they fear the Education Department may be too reliant on student loan revenues to advocate for debt relief.