The federal government booked tens of billions in profit off its student lending operation during the most recent fiscal year, according to new Treasury Department figures.
The government recorded $42.5 billion in profit for the fiscal year that ended Sept. 30, according to Treasury Department figures confirmed by the Education Department. But that total was clouded by revisions from prior years, and it was unclear how much of it reflects Education Department profit from loans disbursed in 2013. Stephen Spector, Education Department spokesman, declined to elaborate.
The $42.5 billion figure represents profit the government expects from loans made in the 2013 fiscal year, as well as updated figures from loans made in previous years. The lucrative student loan program significantly reduces the government’s annual budget deficit, which Treasury said this week was $680 billion.
Government figures made public Wednesday initially appeared to show that the Education Department generated a $176 million profit from borrowers who took out debt from the Direct Loan program during the 2013 fiscal year, according to the Department of the Treasury’s Bureau of the Fiscal Service most recent monthly budget report.
But a subsequent revision by the Treasury shows that the figure was incorrect. As a result of the incorrect figure, The Huffington Post misread the Treasury budget table. The profit figure was incorrectly reported by HuffPost as being calculated on a so-called cash basis, meaning it was based on actual outlays and receipts incurred during the fiscal year. Instead, the profit figure is based on federal government projections.
Still, due to government accounting rules, it is treated as a recorded profit and thus affects the annual budget. This story has been corrected to reflect the revised figures.
Reports of projected government profit from student borrowers caused an uproar earlier this year after Democratic lawmakers, including Sen. Elizabeth Warren (D-Mass.), seized on profit estimates by the Congressional Budget Office and the White House to criticize the Obama administration for making money on the backs of students and their families. The turmoil embarrassed the White House, led to new student loan legislation intended to reduce government profit and resulted in President Barack Obama declaring in August, “Our national mission is not to profit off student loans.”
Some lawmakers, including Sen. Tom Harkin (D-Iowa), said they still hope to revisit the profit issue in the coming months as Congress sets about reauthorizing the nearly 50-year-old Higher Education Act, the federal law governing how federal dollars are allocated to colleges and students. The act expires next year.
The Education Department profit is likely to arm critics such as Harkin and Warren as they attempt to reduce students’ borrowing costs in the face of a weak economy, stagnant wages and increasing tuition. Warren has said that it is “morally wrong” for the government to profit off student borrowers. The CBO had forecast that student loan legislation enacted in August will generate $185 billion in profit over the next decade or so.
Messages left for Cameron French, Education Department spokesman, after normal business hours on Wednesday were not returned. In May, after The Huffington Post compared Education Department profit projections off federal student loans to those recorded by publicly-traded companies, a department spokesman responded by saying, "Projections of student loan collections over the 40-year loan lifetime window are in no way comparable to annual profit turning by corporations."
At the heart of the dispute was the Education Department’s insistence that the government’s profit projections did not constitute actual profit, on the grounds that they were forecasts.
On a July 23 conference call with reporters organized by the White House, Duncan said, “It’s actually neither accurate nor fair to characterize the student loan program as making a profit."
But the Treasury Department report on Wednesday, since corrected, appears to undermine that claim.
Congress and the White House worked together to set student loan interest rates at recent levels. The rates were not updated to reflect the government's record low cost of borrowing in the wake of the recession -- another reason why Congress and the White House joined forces this year to approve new legislation that ties student loan interest rates to the government's cost to borrow.
The majority of the 2013 fiscal year profits are due to loans disbursed in 2013 from the Direct Loan program. The rest of the profits are due to updated estimates of the profitability of Direct Loans made in earlier years, and from loans made from the since-cancelled Federal Family Education Loan program.
The FFEL program ended in 2010, after Congress and Obama joined to end it because lenders were reaping unjustified taxpayer-provided profits off government-guaranteed loans. All federal loans are now made directly by the Education Department under the Direct Loan program.
CORRECTION: This article has been edited to reflect the Treasury Department's revision of budget figures originally made public on Wednesday. It has also been changed to note that the Treasury student loan figure is based on projections, not on cash-basis reporting. The Education Department updated its assessment after this story was originally published as well, from $45.4 billion to $42.5 billion, and the article has been updated to correctly reflect the 2013 profit total.