Government to make $33.5 billion in profit from high student loan interest rates

[gas2014]

It has been reported that the Department of Education is going to make $33.5 billion in profit off the backs of students from high student loan interest rates.

For the past several years, the government has been borrowing money at historically low rates of 1.5-2.0 percent and loaning it to medical/dental/business/law/masters students at a rate of 6.8-7.9 percent. They are set to make a record $33.5 billion in profit from the loans disbursed this year itself.

What are your thoughts on this? Is it fair for the govt. to profit off the backs of students, and why has there been no change regarding this issue?

---

Members don't see this ad.

 

[Silent Cool]

It has been reported that the Department of Education is going to make $33.5 billion in profit off the backs of students from high student loan interest rates.

For the past several years, the government has been borrowing money at historically low rates of 1.5-2.0 percent and loaning it to medical/dental/business/law/masters students at a rate of 6.8-7.9 percent. They are set to make a record $33.5 billion in profit from the loans disbursed this year itself.

What are your thoughts on this? Is it fair for the govt. to profit off the backs of students, and why has there been no change regarding this issue?

No, not fair.
It's what they are doing instead of cutting spending like they should.

 

[fahimaz7]

They should tie interest rates to credit scores and future income predictions. There's no reason why I should have the same interest rate as an undergraduate student at a private school, who is 200k in debt with a psychology degree. Very frustrating

 

[notbobtrustme]

They should tie interest rates to credit scores and future income predictions. There's no reason why I should have the same interest rate as an undergraduate student at a private school, who is 200k in debt with a psychology degree. Very frustrating

That would basically shut down every department but the computer science and business schools.

 

[Bacchus]

It has been reported that the Department of Education is going to make $33.5 billion in profit off the backs of students from high student loan interest rates.

For the past several years, the government has been borrowing money at historically low rates of 1.5-2.0 percent and loaning it to medical/dental/business/law/masters students at a rate of 6.8-7.9 percent. They are set to make a record $33.5 billion in profit from the loans disbursed this year itself.

What are your thoughts on this? Is it fair for the govt. to profit off the backs of students, and why has there been no change regarding this issue?

They also have agreed to write off our debt with PAYE, PSLF, NHSC, etc. They're a business.

That said, I wish my rates were lower.

 

[circulus vitios]

They should tie interest rates to credit scores and future income predictions. There's no reason why I should have the same interest rate as an undergraduate student at a private school, who is 200k in debt with a psychology degree. Very frustrating

I don't understand why non-dischargeable loans carry an interest rate greater than the prime rate.

 

[NickNaylor]

I don't understand why non-dischargeable loans carry an interest rate greater than the prime rate.

Yeah, this is the biggest thing for me. And especially considering it's the government and all.

Sent from my Nexus 7

 

[ToasterThief]

I don't understand why non-dischargeable loans carry an interest rate greater than the prime rate.

Probably because they don't require any collateral.

Also, at least the government is directly giving out the money now instead of giving a handout to BoA/Discover/etc.

 

[redpanda]

Yeah, it sucks, but as you know, we (future physicians) are not exactly looked upon as a suffering, disadvantaged class.

 

[survivordo]

The high interest rate is really what gets me. If it costs 250k to go to med school I can get over that. But shouldn't the government be trying to persuade more people to persuade higher education by giving low interest rates? I can get a car or a house for less than 2% but not a student loan. Come on!

Survivor DO

 

[yehhhboiii]

It's more difficult to control a well educated population. If I were in charge, I would also use high interest rates to control the populace by making them preoccupied with crushing debt.

 

[evilbooyaa]

The high interest rate is really what gets me. If it costs 250k to go to med school I can get over that. But shouldn't the government be trying to persuade more people to persuade higher education by giving low interest rates? I can get a car or a house for less than 2% but not a student loan. Come on!

Survivor DO

This is why my parents are taking out loans at rates way cheaper than what I would be eligible for, and paying them off. It's better to owe my parents money (who aren't trying to profit from my education) than to owe it to the government.

 

[Anigma07]

It's more difficult to control a well educated population. If I were in charge, I would also use high interest rates to control the populace by making them preoccupied with crushing debt.

The man that is in debt is rarely the one to complain about work conditions or strike for better pay. This is where all the talk regarding enslavement from debt comes in and why most physicians who feel that med school is not right for them are unable to leave. With the growing demand for doctors and the decreasing compensation for the profession, it makes sense that interest and overall education payments are so high.

 

[HatWobble]

You don't have to borrow using Stafford loans.

Lots of private credit lenders, most notably Sallie Mae, offer something that the Feds do not: variable-rate student loans. Right now, you can get a Sallie Mae student loan that is the LIBOR + 2%. That's a 2.25% interest rate, instead of 6.8%. Sure, if the LIBOR rises then you may end up paying more than you would for a Stafford, but the LIBOR doesn't look to be rising anytime soon, and the money you borrow earliest in your education is the most expensive. It's a good bet that in the long run, you'd pay less.

If you're really averse to the prospect of the LIBOR rising, you can also borrow a portion of your COA in Stafford and another with a variable-rate lender to "diversify your portfolio", so to speak. Perhaps the Sallie loans could replace the Grad PLUS loans and their absurd rates.

N.B. That 2.25% from Sallie Mae will require you to have a cosigner, and to make payments on the interest during school, so that may not be an option for everyone. You can still get a 2.75% rate while making zero interest payments during school with a cosigner, which ain't too bad.

 

[HatWobble]

The high interest rate is really what gets me. If it costs 250k to go to med school I can get over that. But shouldn't the government be trying to persuade more people to persuade higher education by giving low interest rates? I can get a car or a house for less than 2% but not a student loan. Come on!

Survivor DO

The lender can't seize your medical education if you default.

 

[Endolphins]

It's more difficult to control a well educated population. If I were in charge, I would also use high interest rates to control the populace by making them preoccupied with crushing debt.

I am glad this topic is being discussed. The debt is simply not right: it will be a prison for most of our lives. Now that loans are not subsidized, I am struggling about whether to attend med school in the fall or not.

I would really like to work with other med students to get our schools talking about how we can lower the cost and also petitioning or protesting for subsidized loans, at the very least.

 

[calvnandhobbs68]

The lender can't seize your medical education if you default.

Exactly.

Education loans need to be non-dischargable or else they would just stop giving out student loans. You know what they call loans without collateral? Credit cards. Anyone seen the interest on those lately?

I'll add in that I do think the interest rate as it stands is pretty high. I think it would be a little more fair to knock it down a few percentage points.

 

[circulus vitios]

N.B. That 2.25% from Sallie Mae will require you to have a cosigner, and to make payments on the interest during school, so that may not be an option for everyone. You can still get a 2.75% rate while making zero interest payments during school with a cosigner, which ain't too bad.

Very few medical students could find someone to cosign a $200-300k loan.

 

[HatWobble]

Very few medical students could find someone to cosign a $200-300k loan.

Well, considering a non-zero fraction of students have their entire COA paid for by their parents, you'll find, to various degrees, parents willing to expose themselves financially for the sake of their children. I don't think it'd be that hard to find a parent that would be a cosigner for their kid's loans. Especially if the parents are well-off.

 

[Kevin Baker]

They should tie interest rates to credit scores and future income predictions. There's no reason why I should have the same interest rate as an undergraduate student at a private school, who is 200k in debt with a psychology degree. Very frustrating

Double the rate. Undergrad debt is further subsidized at 3.4%, at least until July.

My biggest issue with the situation is the default rate in relation to interest rates. Less than 1% default and one of our student aid faculty members said only 0.4% of stateside medical students default. With rates that low, who cares about dischargeable loans and/or collecting collateral. It's pocket change. But instead of separating med students out, we get lumped with all the other grad students and pay these inflated rates.

 

[yehhhboiii]

You don't have to borrow using Stafford loans.

Lots of private credit lenders, most notably Sallie Mae, offer something that the Feds do not: variable-rate student loans. Right now, you can get a Sallie Mae student loan that is the LIBOR + 2%. That's a 2.25% interest rate, instead of 6.8%. Sure, if the LIBOR rises then you may end up paying more than you would for a Stafford, but the LIBOR doesn't look to be rising anytime soon, and the money you borrow earliest in your education is the most expensive. It's a good bet that in the long run, you'd pay less.

If you're really averse to the prospect of the LIBOR rising, you can also borrow a portion of your COA in Stafford and another with a variable-rate lender to "diversify your portfolio", so to speak. Perhaps the Sallie loans could replace the Grad PLUS loans and their absurd rates.

N.B. That 2.25% from Sallie Mae will require you to have a cosigner, and to make payments on the interest during school, so that may not be an option for everyone. You can still get a 2.75% rate while making zero interest payments during school with a cosigner, which ain't too bad.

I don't understand why anything is tied to LIBOR. It's not even a real measurement of anything; it's just a purported estimate of how much it costs various banks to borrow aka basically they "report" whatever benefits themselves most.

 

[Dave89]

I am glad this topic is being discussed. The debt is simply not right: it will be a prison for most of our lives. Now that loans are not subsidized, I am struggling about whether to attend med school in the fall or not.

I would really like to work with other med students to get our schools talking about how we can lower the cost and also petitioning or protesting for subsidized loans, at the very least.

If and when you start, it won't take long to find out where all that money is going. Interest clubs' free lunches all the time, feel-good Offices and Departments, etc. Until med students decide to do away with the frills, they will pay the price.

 

[Textbookversion]

Realistically this a smart setup by the feds. Expensive interest rate + IBR/PSLF ---> drive people towards working at nonprofits.

 

[sazerac]

Now that loans are not subsidized, I am struggling about whether to attend med school in the fall or not.

The subsidized amount after 4 years was less than $30K. The interest on that is about $2,000 a year. You could save that much by finding a cheaper apartment, or a roommate. You may have struggles about attending medical school, but subsidized loans ain't one of them.

 

[Endolphins]

The subsidized amount after 4 years was less than $30K. The interest on that is about $2,000 a year. You could save that much by finding a cheaper apartment, or a roommate. You may have struggles about attending medical school, but subsidized loans ain't one of them.

Thanks, I didn't know the exact numbers. My school projects that the costs will be about $315,000 before interest, which is MOSTLY why I'm doubting this choice. The 8 years of interest before making a dent in it is icing on the cake.

 

[SoundofSilver]

Thanks, I didn't know the exact numbers. My school projects that the costs will be about $315,000 before interest, which is MOSTLY why I'm doubting this choice. The 8 years of interest before making a dent in it is icing on the cake.

I'm assuming the 315,000 includes the full cost of attendance (i.e. rent, food, etc.). That number is usually an overestimation and assuming you live relatively frugally, you can easily get by on 10-15 thousand a year in living expenses (assuming your school isn't somewhere expensive like NYC). So you may actually be looking at less than that in actual principal (but then again, with the capitalized interest, it's possible your principal may actually hit 315 by the time you're done with school).

If it's a possibility, I'd seriously consider attending a cheaper school.

200K in loans was pretty much the red line for me. I personally wouldn't go into medicine if I had to take out 315k in student loans, but I'm sure there are plenty who would. Good luck.

 

[notbobtrustme]

If and when you start, it won't take long to find out where all that money is going. Interest clubs' free lunches all the time, feel-good Offices and Departments, etc. Until med students decide to do away with the frills, they will pay the price.

If you think that's why tuition is going up, you are grossly mistaken.

 

[Dave89]

If you think that's why tuition is going up, you are grossly mistaken.

It's not the sole driver, but when the rise in tuition is outpacing inflation as much as it is, it's prudent to consider all the factors.

 

[Textbookversion]

It's not the sole driver, but when the rise in tuition is outpacing inflation as much as it is, it's prudent to consider all the factors.

Typically those things are covered by student service fees, a separate line item bill for $100-200 a quarter/semester.

 

[Dave89]

Typically those things are covered by student service fees, a separate line item bill for $100-200 a quarter/semester.

I haven't seen any specifics of where this money goes when I'm charged the fees. To me, all they represent is fine-print revenue generation.

 

[NickNaylor]

I haven't seen any specifics of where this money goes when I'm charged the fees. To me, all they represent is fine-print revenue generation.

I think the AAMC publishes statistics like this. Don't remember how to access them or where I saw this, but I think that, on average, less than 20% of a school's revenue comes from tuition.

Sent from my Nexus 7

 

[45408]

I haven't seen any specifics of where this money goes when I'm charged the fees. To me, all they represent is fine-print revenue generation.

It's not the interest group lunches driving the problem, dude.

 

[Dave89]

It's not the interest group lunches driving the problem, dude.

I know, it's endless administration, overabundance of loan availability to students in general, and funding of part-time professors/researchers. But I think if students really care about the hikes, they should expect to see some of the amenities cut.

 

[oceanillusion42]

Just as a random factoid, if you look at the AAMC figures for avg student indebtedness for 2012 (about 170k) and then the total number of graduates per year (about 17k) you'd come up with a total of $3 billion. So theoretically, if the government were to subsidize medical education it would amount to 0.3% of total healthcare spending. Just some food for thought.

 

[Wordead]

Just as a random factoid, if you look at the AAMC figures for avg student indebtedness for 2012 (about 170k) and then the total number of graduates per year (about 17k) you'd come up with a total of $3 billion. So theoretically, if the government were to subsidize medical education it would amount to 0.3% of total healthcare spending. Just some food for thought.

But there is no end to the # of students that are willing to take on hundreds of thousands of dollars of debt to go to medical school so where is the driver for reform?

Not coming from the AMA.

 

[rbnsafsadgf]

The lender can't seize your medical education if you default.

But some states will pull your license. So, yes, they can seize it.

 

[bob1234]

How else are they going to make up that trillion dollars in current student loan debt. . .

I wish I could get the same rate the banks do (0%), but when you are a serf you take what you can get.

 

[yehhhboiii]

How else are they going to make up that trillion dollars in current student loan debt. . .

I wish I could get the same rate the banks do (0%), but when you are a serf you take what you can get.

0%? The fed shoveled money at the banks to get them to loan but the banks just parked it right back at the fed where it accrued interest. Pretty slick deal.

 

[NickNaylor]

0%? The fed shoveled money at the banks to get them to loan but the banks just parked it right back at the fed where it accrued interest. Pretty slick deal.

"Hey man, here's some free money - just make sure you give it to 'the folks' so that they can do some stuff with it."

"Wow, thanks, here's that money back, and I'll gladly take some interest with it, please!"

 

[matchb0x]

I don't understand why non-dischargeable loans carry an interest rate greater than the prime rate.

Because the government can do whatever they want. They bend/break/ignore the rules they themselves write for us to follow.

 

[deleted116380]

But some states will pull your license. So, yes, they can seize it.

+1 Glad someone else pointed this out. Revoking a license makes your MD degree worthless so it's essentially the same thing as taking back your education.

Med school will become a field only for those that come from wealthy families or getting a full scholarship for whatever reason. I won't be surprised to see the PSLF program pulled sometime in the future like graduate subsidized loans were. I think the $8,500/yr subsidized had been held constant for 20 years. Prior to that, it was an increasing amount til it hit that final number.

 

[Dave89]

Med school will become a field only for those that come from wealthy families or getting a full scholarship for whatever reason.

I think a safer bet would be that med school (at least the tuition) will be totally subsidized by the gov't. Most med students are pretty liberal, so they'd have little problem with this. In exchange, there will be far more control over how, and on whom, physicians are allowed to practice.

 

[ajh1983]

I think a safer bet would be that med school (at least the tuition) will be totally subsidized by the gov't. Most med students are pretty liberal, so they'd have little problem with this. In exchange, there will be far more control over how, and on whom, physicians are allowed to practice.

wow

 

[notbobtrustme]

I think a safer bet would be that med school (at least the tuition) will be totally subsidized by the gov't. Most med students are pretty liberal, so they'd have little problem with this. In exchange, there will be far more control over how, and on whom, physicians are allowed to practice.

[citation needed]

also, the only people the government can control like you think is possible are those in the armed forces.

 

[Dave89]

[citation needed]

also, the only people the government can control like you think is possible are those in the armed forces.

Um, citation needed for my prediction?

 

[notbobtrustme]

Um, citation needed for my prediction?

for anything that suggests medical school will be subsidized.

 

[Dave89]

for anything that suggests medical school will be subsidized.

Pretty sure it happens elsewhere. Most of my class cheered when some lecturer suggested that med school tuition be covered by the gov't. Petitions from med students for the same. A good mechanism for the gov't to encourage applicants to med school if/when reimbursement to medical providers really declines. Would increase number of students willing to go into primary care. Etc.

 

[deleted116380]

Pretty sure it happens elsewhere. Most of my class cheered when some lecturer suggested that med school tuition be covered by the gov't. Petitions from med students for the same. A good mechanism for the gov't to encourage applicants to med school if/when reimbursement to medical providers really declines. Would increase number of students willing to go into primary care. Etc.

Federal gov't subsidies? They used to subsidize the interest on loans, but cut that out to save money. I'd be surprised if they decide to foot the tuition bill let alone interest on loans.

For my state (FL), the state gov't subsidizes tuition by about $18-20k now a year. Out of state students pay the full unsubsidized amount ($52k-ish) and we pay $33k-ish as in-state. Every year they subsidize less as they raise the in-state tuition amount (aka lowering the subsidy) as out-of-state rate stays roughly the same.

There are some programs where you can agree to do primary care fields and get some of your loans if not all covered, but I'm referring to the entirety of med school students. Military pathways, PSLF, primary care scholarships, etc, will exist, but those will not take over imo and I don't feel the gov't (federal at least, can't speak for all state govts) will not foot the bill.

Education is a huge business (industry) in the US and there is no reason to pay more to support it than they have to. Especially when they're facing budget cuts themselves.

 

[Dave89]

Federal gov't subsidies? They used to subsidize the interest on loans, but cut that out to save money. I'd be surprised if they decide to foot the tuition bill let alone interest on loans.

For my state (FL), the state gov't subsidizes tuition by about $18-20k now a year. Out of state students pay the full unsubsidized amount ($52k-ish) and we pay $33k-ish as in-state. Every year they subsidize less as they raise the in-state tuition amount (aka lowering the subsidy) as out-of-state rate stays roughly the same.

There are some programs where you can agree to do primary care fields and get some of your loans if not all covered, but I'm referring to the entirety of med school students. Military pathways, PSLF, primary care scholarships, etc, will exist, but those will not take over imo and I don't feel the gov't (federal at least, can't speak for all state govts) will not foot the bill.

Education is a huge business (industry) in the US and there is no reason to pay more to support it than they have to. Especially when they're facing budget cuts themselves.

All true. But fully subsidizing (undergraduate) medical education would give the gov't an excuse to really slash payment to providers for the healthcare entitlements. "Not satisfied with making ~$90,000/year? Don't go to med school."

 

[rbolt25]

Everyone....it's ok! At least the money made will be put to good use! (sarcasm).