Many student borrowers are paying record rates of relative interest on government loans. This has nourished education department coffers and propelled apprehensions that student borrowing expenses and debt parameters are confining the fledgling economy, whose recovery is also hit. Legislators, policy makers and student advocates have been notifying about the economic perils posed by escalating student debt levels, whose present $1.1 trillion mark exceeds every consumer debt barring home mortgages. Some quarters have warned that this debt is impeding the economy and might affect credit creation, accumulation in future. Led by Arne Duncan, the education department was anticipating $33.5 billion from student loans during the 2013 financial year.
According to budget documents, the agency’s direct loan program generated $24 billion profit on loans provided in 2012, and virtually $27.5 billion on loans. The department has accumulated $101.8 billion in profit from student borrowers in the last five financial years. This is due to low borrowing expenses for the government alongside fixed interest rates for students. Some student advocates have also accused the department of foul play. The education department spokesperson was unavailable for comment on this one. The White House is anticipated to announce on Wednesday that some student loans operate on a fixed interest rate, which is articulated by the Congress currently, to a variable rate which operates alongside borrowing costs. These are market-driven.
As a token of intent from the Obama Administration, the White House gamut of Budget and Management said in January that loans must be characterized in accordance with the concerned market on a benchmark security of treasury rather than any absolute level. Officials said that “a specific fixed interest rate should not be cited in legislation or in regulation. The reason being, such rates can become outdated. The Financial Research office has termed student debt as a potential danger to financial and economic stability. It has warned that abundant debt could marginalize demand for house mortgages and impede consumption. The Consumer Financial Protection Bureau initiated a consultation to determine the method of facilitation for enhancing debt write-downs alongside stimulating or accentuating refinancing for countless of U.S borrowers. These people collectively entail some $150 billion of the entire chunk, thereby generating ceaseless comment letters.
Government loans have not yet become the cynosure as far as inquiry is concerned. But some former and current high-ranked officials opine that it should be since relative rate borrowers are paying as a result of the government’s commendable efforts to reduce borrowing costs for corporations, households, small businesses and investors to bolster economic growth. The government makes an optimum use of graduate students, who produce nearly 64% of the revenue for taxpayers. Considerable profit is funneled to auxiliary student-aid programs, though policy makers can channelize these funds for different purposes since they all go to the general treasury.