Government Loophole Inflates Profits from Student Loans

At a time when college tuition is at an all-time high and growing exponentially, it’s downright appalling to hear what the US General Accounting Office had to say yesterday about the Department of Education.

Apparently, while you and your family have been struggling to pay college tuition, the lenders – the large banks the government borrows from to give to you – have been scoring excessive profits on those government student loans.

Whenever you borrow money, you need to pay that money back plus interest. Well, the most common interest rate on student loans is now about 3.5%. That’s what you pay to the government.

But what is the Education Department giving to the banks? A whopping 9.5%. So you’re paying the government 3.5% and the government is paying the banks 9.5%.

Makes sense, right?

Well, according to the GAO (PDF) (which is the government’s own watchdog on these kind of things), the folks at the Dept. of Education knew about this practice and even possibly went out of their way to ignore the enormous discrepancy so they could keep filling the lenders’ pockets.

So lets get this straight. Students are in record debt. They are taking on more loans than ever--nearly $19,000 for the average borrower. The government, meanwhile, instead of seeking ways to help young people with their debt, is shoveling money as fast as it can to the loan providers.

That’s nice. Real nice.

Make sure you let the candidates know that you want a government that puts students first.