Stillwater News Press

Our World

April 21, 2014

Biggest student loan profits come from grad students

NEW YORK — This week, the Congressional Budget Office projected that the federal government would earn roughly $127 billion from student lending during the next 10 years. That estimate is down a bit from previous figures but is surely high enough to infuriate liberals like Sen. Elizabeth Warren, D-Mass., who tend to regard the idea of a profitable student loan program as fundamentally indecent.

While browsing the CBO's data, however, I noticed something intriguing about those fat-sounding profits: Most of them don't come from undergraduate lending. The Department of Education is really making its killing by loaning money to grad students. And, with all due respect to any disgruntled J.D.s or Ph.D.s reading today, there's really nothing wrong with that.

First, the big picture. Through 2024, the CBO expects our government to rake in a $149 billion profit on new direct loans to students. Grad school lending will generate about three-quarters of those returns, which fall to $127 billion once you subtract administrative expenses and costs associated with the discontinued guaranteed lending program.

At the same time, the government will lose a small amount of money on direct loans to undergraduates, which make up more than half of its lending operation. While the Department of Education makes a profit on unsubsidized Stafford loans to college goers, it takes a hit on subsidized Staffords that go to low- and middle-income undergrads. When everything shakes out, the programs combine for a 10-year, $3 billion net loss.

Now back to those grad schoolers. Their loans, which now make up about one-third of the government's yearly lending portfolio, are expected to yield almost $113 billion over the 10-year window before admin costs. Once again, that's three-quarters of the government's direct lending profit. Graduate students are such lucrative customers because they pay higher interest rates than undergraduates and don't default all that often. For the government, they're low-risk, high-reward borrowers.

Here's where the government is expected to make a bit of money off of undergraduate students: lending to mom and dad. Parent PLUS loans, which are only available to the parents of undergrads, are expected to rake in a bit more than $42 billion over 10 years. Parent loans make up a mere tenth of the total undergraduate portfolio. But again, thanks to low default rates - unlike other student loans, they involve a light credit check - and high interest rates, they yield a nice return for the Department of Education.

               

     

 

1
Text Only | Photo Reprints
Our World
Must Read
Buy & Share Photos
NewsPress e-Edition
NewsPress Specials
AP Video
Texas Scientists Study Ebola Virus Smartphone Powered Paper Plane Debuts at Airshow Southern Accent Reduction Class Cancelled in TN Raw: Deadly Landslide Hits Indian Village Obama Chides House GOP for Pursuing Lawsuit New Bill Aims to Curb Sexual Assault on Campus Russia Counts Cost of New US, EU Sanctions 3Doodler Bring 3-D Printing to Your Hand Six PA Cops Indicted for Robbing Drug Dealers Britain Testing Driverless Cars on Roadways Raw: Thousands Flocking to German Crop Circle At Least 20 Chikungunya Cases in New Jersey Raw: Obama Eats Ribs in Kansas City In Virginia, the Rise of a New Space Coast Raw: Otters Enjoy Water Slides at Japan Zoo NCAA Settles Head-injury Suit, Will Change Rules Raw: Amphibious Landing Practice in Hawaii Raw: Weapons Fire Hits UN School in Gaza Raw: Rocket Launches Into Space With Cargo Ship Broken Water Main Floods UCLA
Stocks
NDN Video
Heartwarming 'Batkid Begins' Documentary is Tear-Jerker Orlando Bloom 'Takes a Swing' at Justin Bieber In Ibiza Pitch Invading Morons Cause Chaos - @TheBuzzeronFOX Sadie Doesn't Want Her Brother to Grow Up "Maxim" Hotness! See Jessica Alba's Sizzling Spread Two women barely avoid being hit by train Broken Water Main Floods UCLA Orlando Bloom and Justin Bieber Reportedly Came To Blows In Ibiza Meet the Man Behind Dumb Starbucks Chris Pratt Adorably Surprises Kids at a 'Guardians of the Galaxy' Screening NOW TRENDING: Peyton Manning dancing at practice "The Bachelorette" Makes Her Decision Thieves pick the wrong gas station to rob Golden Sisters on '50 Shades' trailer: 'Look At That Chest!' Staten Island Man's Emotional Dunk Over NYPD Car - @TheBuzzeronFOX GMA: Dog passes out from excitment to see owner Baseball Hall of Famers Inducted 'Hunger Games: Mockingjay Part 1' Sneak Peek Florida Keys Webcam Captures Turtles Hatching Morgan Freeman Sucks Down Helium on 'Tonight Show'