Is the U.S. Government Profiting From Student Loans?
The answer is complex and changes based on accounting methods, economic conditions, and policy decisions. This interactive report breaks down the key factors that determine whether the federal student loan program generates revenue or results in a cost to taxpayers.
The Big Picture: Profit or Loss?
The debate over profits often hinges on two different accounting methods used by government analysts. The government's official method often projects a profit, while an alternative that accounts for market risk often projects a loss. Explore the projections from both perspectives below.
Official Government Method (FCRA)
The Federal Credit Reform Act (FCRA) is the standard accounting method used by the government. It projects future loan performance based on historical data and government borrowing costs. Under this method, the student loan program has often been projected to generate tens of billions in revenue over the long term because the interest rates charged to students are typically higher than the government's cost to borrow money.
How The Financial Engine Works
To understand the profit and loss calculations, it's essential to see how the federal loan system functions. This simplified model shows the flow of funds and the key factors influencing the program's bottom line. Click on each step to learn more.
Click a step above
Select a part of the process to see how it contributes to the overall financial picture of the student loan program.
The Impact of Loan Forgiveness
Loan forgiveness programs directly impact the system's finances by canceling expected future revenue. While designed to provide borrower relief, these policies represent a significant cost to the government, altering previous profit or loss projections.
Direct Costs
When a loan is forgiven, the government forgoes all future principal and interest payments. This is recorded as a direct cost, immediately increasing the projected expenses of the loan program.
Income-Driven Repayment (IDR)
IDR plans, such as SAVE, forgive remaining balances after 20-25 years of payments. The expansion and generosity of these plans have significantly increased the long-term projected costs of the loan program.
Public Service Loan Forgiveness (PSLF)
PSLF forgives loans for public servants after 10 years of payments. While a cornerstone of federal aid, its costs are factored into long-term budget projections and reduce the overall net revenue from the program.
Federal vs. Private Loans
The government's financial involvement is limited to federal loans. Understanding the key differences between federal and private options is crucial for any borrower making decisions about their education financing.
| Feature | Federal Loans | Private Loans |
|---|---|---|
| Interest Rates | Fixed rates set by Congress. Same for all borrowers regardless of credit score. | Variable or fixed rates based on creditworthiness. Can be lower or higher than federal rates. |
| Repayment Options | Many flexible options, including Income-Driven Repayment (IDR) plans. | Fewer options. Determined by the individual lender. |
| Loan Forgiveness | Eligible for programs like Public Service Loan Forgiveness (PSLF) and IDR forgiveness. | Generally not eligible for forgiveness programs. |
| Borrower Protections | Generous deferment and forbearance options. Discharge available in certain cases (death, disability). | Protections vary by lender and are typically less generous. |