There’s no federal election this fall, so the political hue and cry of a year ago over plans for the federal government to double the interest rate it charges on student loans is largely absent. But before lawmakers do this to the millions of college students (and graduates) who rely on these loans, they might want to consider a study by the nonpartisan Congressional Budget Office released two months ago showing that the government actually profits from student loans.
Where conservatives have long claimed the program is a money pit for the government, the CBO study found quite the opposite: That it generates a 36 percent profit, a total of some $34 billion this year!
If that’s true, why would the government want to jack up the interest rate — currently 3.4 percent on Stafford loans — pushing the payments of a student with a typical $25,000, 10-year loan up $42 per month, to $288? That would represent more than 10 percent of the typical liberal arts grad’s income — not very affordable — probably serving to increase default rates in the process.
What else it would do is discourage millions of prospective students from applying to college. Maybe that wouldn’t be the worst thing in the world, because college is a hugely expensive investment that doesn’t always pay off. But for most people who get one, a college degree still increases the chances of a finding a job, and of earning more money. If it’s not costing the government a bundle of money to subsidize loans for this purpose, it should continue doing so.