£5 billion of student loans unaccounted for

London (AFP) - Over £5 billion of student loans made from the public purse are unaccounted for, a watchdog said Thursday.

The National Audit Office (NAO) said that £5.3 billion was owed by around 368,000 people for whom there is no current employment record or other earnings details.

The total value of outstanding student loans is also forecast to increase from £46 billion in 2013 to approximately £200 billion by 2042, in 2013 prices, according to the Department for Business, Innovation and Skills (BIS).

The NAO warned that nearly 50 percent of new borrowers are not expected to fully repay their loans.

Of the outstanding £46 billion, BIS expects only £31 billion to be repaid.

The department forecasts that about 35 percent of loans issued in 2013 will not be repaid.

The government introduced changes in 2012 which allow students to borrow more and repay more slowly.

Under the current system, students only repay their loans when they are earning a certain salary -- now set at £21,000 -- and repayments are linked to their earnings.

The watchdog warned that the government had not done enough to establish whether borrowers with no current employment record are earning enough to repay their loans.

"BIS needs to make better use of data to support its collection strategy and improve its understanding of where it could invest to maximise the collection value of the loan book," NAO said.

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Associated Press 13 mins ago

No wonder people aren't paying back their student loans

About this time last year I did a good, honest and potentially rather stupid thing: I phoned up the Student Loans Company, and told them where I was. In light of the revelation that 368,000 former students owing a total of £5bn are "at large", their whereabouts unknown, I'm starting to think this was something of a mistake.

I hasten to add that I wasn't evading my student loan payments, because, while on the rock and roll, I wasn't earning anything in the first place. Informing them of this fact not only seemed futile but also too much like a hard day's work. I needed something called a "customer number" and a "secret answer". Scarred by years of contact with Student Finance Wales, I just couldn't face sitting on hold to a premium rate number listening to the interminable warbles of Atomic Kitten, only be told that the bit of paper I had was wrong. Eventually I worked out that if I called the Welsh-speaking number, not only could I get through immediately but as their compatriot and a fully paid-up member of the Taffia they'd look kindly on me and therefore be less fascistic about the security questions. A couple of stints abroad combined with my mother selling her house and my drifting from rented property to rented property, combined to thoroughly boot me off the map, or at least I suspected as much. But I was too much of a wimp to sit tight and see what happened, which is presumably what those 300,000 plus people are doing right now. Fair play to them, I wouldn't be able to take the stress of constantly expecting a knock on the door in the dead of night, a door which you open, sleep-eyed, only to be confronted with a grey faced bureaucrat, terribly sorry for disturbing you so late, who asks you very nicely for all of it back at some point, provided you have it, of course. (I should add that 50% of all students will never have enough to pay it all back.) Perhaps this is why the government speaks of needing a "more robust strategy" when it comes to eking repayments out of graduates, and is already outsourcing past debt to private companies, who will possibly raise repayment rates. But again, soaring repayment rates only really matter if you have enough money to pay back some of your loan in the first place.

I've written before about the prevalence of the view that student debt isn't "real debt" among my friends and acquaintances, and this is precisely why. You don't have to start paying back your loan until you reach an income threshold - at the moment this is £16,500, necessitating a £1 monthly repayment rate - and we graduated in the middle of a recession, so, in no small part thanks to the media, the assumption was that we'd all be living in a shanty town comprising urine-soaked mattresses and horsemeat lasagne boxes within a week of picking up our degree certificates. The idea that any of us would be paying more than 100 quid monthly to the Student Loans Company was laughable - our massive overdrafts, of which I had two, were the greater worry. Now that some of us are paying it back, none of us are laughing.

Of course, it is money that I borrowed, and money that I must therefore, according to laws of the land, return, with some extra whacked on top for the privilege. I am resigned to this. But it doesn't mean that I'm not angry. My university chose to raise tuition fees despite widespread protest, to £9,000 a year; this did not affect me. I was probably one of the last pupils to receive a full tuition fee grant from the government to attend an English university, though I still borrowed for maintenance. Now, every few months I get a call from my university asking for cash towards its hardship fund, a fund of which I myself was a recipient. It makes me wonder what they're using their increased income for exactly, if not to help poorer students, instead of relying on recent graduates who have just started to pay back the cost of their own education, to support the next generation.

I don't really blame those who are avoiding their repayments. This is a system that has failed young people at every level, and which is then clearly completely incompetent when it comes to recouping missing funds. Liam Byrne has it that so many loans are being written off that the new system is more expensive than the old one. I'm not surprised. People don't feel they owe the government anything, and it's made it far, far too easy for a generation of angry people to disappear.

The Government Just Made a $41.3 BILLION Profit Off Of Student Loans

Image Credit: AP

The news: Brace yourselves - the United States federal government made a profit of $41.3 billion off of student loans for the fiscal year of 2013.

That's good for the third highest profit in the nation, behind just Exxon Mobile (which made $44.9 billion in 2012) and Apple (which made $41.7 billion last year). And when accumulated student debt is greater than $1 trillion, to hear that the government is actually making money off of loans will surely make some blood boil.

Not all agree that the federal government makes a profit, though. It depends how you calculate the interest rate yield on student loans. Projections are based on U.S. treasury bonds, which actually set the interest rates for student loans below the market rate, leaving money on the table. It's suggested the current accounting method doesn't totally account for delinquent or defaulted loans, or the risk involved with dispersing these loans (that, if taken into account, would be cause to raise the interest rate on loans). By some calculations, there is actually little profit - or even none at all.

The background: The $41.3 billion profit is actually roughly $10 billion lower than projected back in the spring. In May, profit forecasts showed the federal government stood to make an estimated $51 billion on student loans, which would have cleared even the highest profit-reaping companies in America.

The federal government is the sole provider of student loans, after passing the Student Aid and Fiscal Responsibility Act in 2010. The switch from private bank lending was estimated to save approximately $67 billion over 10 years, but there was concern over profits even back then. "There's a risk of almost treating students like an ATM," warned Becky Timmons, assistant vice president for government relations at the American Council on Education.

Why it matters: Student loans are big business. In 2013 alone, students borrowed around $106 billion in loans. Millions of borrowers are in default on their loans, and the average borrower owes over $14,000 when they default. So it's not great news when the federal government makes headlines for their profits on loans.

But will anything be done? Can anything?

In July, when addressing the projected record profits, Secretary of Education Arne Duncan didn't admit to making a profit off of student loans: "It's actually neither accurate nor fair to characterize the student loan program as making a profit," he said.

And though Congress is expected to address the issue in the near future, considering how long it took lawmakers to tackle interest rates, a concrete deal isn't likely to come any time soon.

Some states are taking student loan matters into their own hands. In July, Oregon voted to begin a "Pay It Forward" program that would essentially eliminate student loans. Students would pay a percentage of their paycheck back after graduation, instead of fronting the cost at the beginning.

At a time when it is as imperative as ever for high school graduates to continue on to college, it doesn't look good when the federal government is profiting off of their debt. The federal student loan program should minimize the amount students owe, not maximize the amount the government makes.

Student loans: hundreds of millions of pounds unaccounted for

Hundreds of millions of pounds of public money paid out in student loans is unaccounted for because the government does not have enough information about the recipients, a report by the spending watchdog suggests.

The National Audit Office has found that the Department for Business, Innovation and Skills (BIS) does not have employment records for around 368,000 students and former students who took out loans under the scheme.

This could be because they are unemployed students living in the UK, EU students who have returned home or UK students who have moved overseas, a report has found.

It means that the government does not have enough information to decide whether these students should be making repayments on their loans, and if so, how much.

In its report, the NAO also said that BIS "consistently over-forecasts how much it expects to collect annually by around 8%."

Using that percentage figure, House of Commons library research has found that the department would be left struggling to cover an extra £600m expenditure from 2015/16.

Under the current system, students only repay their loans when they are earning a certain salary - now set at £21,000 - and repayments are linked to their earnings.

The watchdog warns that the BIS has not done enough to establish whether borrowers with no current employment record are earning enough to repay their loans.

While many of borrowers may not be in work, BIS, and the Student Loans Company (SLC) which helps collect payments, have carried out little analysis on how many may be working overseas, or the repayments that may have been missed, the NAO said. It calls on the government to improve the information they have on students who have taken out loans.

The report also says that in March, there were 157,000 people who had had no employment record for over a year. While the SLC writes to them at least once a year, it takes limited further action because it does not think this would be cost-effective.

The NAO, which is independent of government, notes that there are around 14,000 former students, with a total debt of £100m, living overseas who are behind on their repayments.

While this is a small group compared to the total number of people with student loans, the SLC could take a "more targeted approach" to collecting in these areas, the report said.

The NAO's study says that BIS has forecast that the total value of outstanding student loans will quadruple from £46bn to around £200bn by 2042 at today's prices.

At the same time, the number of borrowers due to repay is estimated to rise from 3 million in 2012/13 to 6.5 million in 2042.

More than a third (35%) of new loans taken out are not expected to be repaid, according to government figures, and around half of students are not expected to fully repay their debt.

Under a major overhaul of higher education funding, which saw tuition fees at English universities treble to a maximum of £9,000, student loans are now written off after 30 years.

On Monday, the government announced plans to sell off £900m of debt on loans taken out by students, mainly from the 1990s.

In all, the Commons library expects there to be a £3bn shortfall over the course of the next parliament between what the department had hoped to recoup from student loan repayments and what it is now likely to get back in loan payments.

Labour's shadow higher education minister, Liam Byrne, who commissioned the extra projections from the library said: "We need to know fast how ministers got it so wrong, and how they're going to fix it without putting the Britain's scientists, students and colleges under threat. This is industrial scale incompetence at the department for industry."

"Worse of all, we may be at the point where so many students loans are being written off, that the government's new student finance system is actually more expensive than the old arrangements, even though the government is asking students for three times as much money. You couldn't make it up," he said.

A BIS spokesman said: "The report demonstrates that there is an effective and efficient process resulting in high collection rates at a low cost which we believe demonstrates good value for money.

"We need to ensure that all borrowers who are earning over the relevant payment threshold are repaying their loans including those who have moved overseas after leaving their course.

"We are continually improving the collection process for borrowers and we will carefully consider the NAO's recommendations as part of this programme," he said.

The Department of Education, Inc: Profiting From Student Loans?

NEW YORK ( MainStreet) — Is the Department of Education mainly carrying out mandates to establish and administer federal assistance to education while enforcing educational laws on privacy and civil rights?

Or is it a business that is pulling in huge amounts of cash?

According to reports in Monday's Detroit Free Press and USA Today, the ED made enough on student loans last year to hand out Pell Grants of $5,645 each to 7.3 million college students.

These reports claim that being a government entity didn't prevent the ED from acting like a for-profit operation. While the $41.3 billion profit for the 2013 fiscal year reported by these publications is down $3.6 billion from the previous year, it's a higher profit level than all but two companies in the world: Exxon Mobil, which cleared $44.9 billion in 2012 and Apple, which made $41.7 billion.

Arne Duncan, Secretary of Education, having been down this road before, has begged to differ.

"It's actually neither accurate nor fair to characterize the student loan program as making a profit," Duncan said during a July conference call with reporters after the Free Press and other news organizations reported on profits made from student loans.

Duncan has a point. Similar numbers were heard last August about the money the ED makes from Senator Elizabeth Warren (D-Mass.), who suggested that the ED was turning a $51 billion profit, a number that was shot down—although not to everyone's satisfaction--by Washington Post blogger Glenn Kessler.

Predicting the value of the loans and how much the Department makes from them is tricky; opacity does indeed reign. The 1990 Credit Reform Act determines how the government accounts for student loans. The ED counts the cash outflows as the loan payout—the disbursement of the loan. Cash inflows are the loan payback including principal plus interest and fees, less any amount that the borrower stiffs Uncle Sam. Delinquencies and defaults can be wildest of wild cards.

Federal Government's Student Loans Windfall: 41B in Profits

President Obama and the 2010 Democrat-controlled congress passed two boondoggles. The Afordable Care Act, better known as Obamacare, and the revamping of the Student Loan Program.

By now, it's clear that Obamacare will be an albatross on the necks of every Washington Democrat runnuing for re-election next year.

Obama also wanted to take over the Student Loan Program to eliminate the "middle man" the banks. The Democratic controlled Congress passed the bill, and President Obama signed it into law promising to save billions of dollars that would go to grants for needy students.

This is an Obama scheme for a mo' money, money grab from Washington. This is no redistribution of wealth. Just more big government taking control of more of the economy, and as our private sector shrinks, the federal bureaucracy grows.

This is another scandal to add to the ever growing list to add to President Obama's legacy.

The Government Is Making Bank On Student Loans! Isn't That Great?

Get ready for some good news, college students! The student loan business is a-boomin according to USA Today.

The federal government made enough money on student loans over the last year that, if it wanted, it could provide maximum-level Pell Grants of $5,645 to 7.3 million college students.

Bad news is that isn't happening. And you're not getting any of the $41.3 billion profit. And we shouldn't even really be calling it profit because according to Education Secretary Arne Duncan, "It's actually neither accurate nor fair to characterize the student loan program as making a profit."

But still, this thing we aren't calling a profit is bigger than profits at all but two companies combating for your hard earned cash.

The $41.3 billion profit for the 2013 fiscal year is down $3.6 billion from the previous year but it's a higher profit level than all but two companies in the world: Exxon Mobil cleared $44.9 billion in 2012, and Apple cleared $41.7 billion. ( via)

That's just swell. Isn't that just swell? Don't worry, Congress will soon be handling this issue and fixing it in the coming months. Just like they solved the debt crisis.

This summer, Congress passed a law tying interest rates on loans to the market. The law set rates for all the loans at different levels, but based them all on the 10-year U.S. Treasury rate and allowed rates to change each year...While offering immediate relief to students, those rates are expected to rise in coming years and give the federal government $175 billion in profits from student loans over the next decade. ( via)

None of this is stressful or depressing at all. My advice? Just keep moving forward. Buy things, watch movies, plow through Netflix. It'll all be fine. Let's all go get a credit card.

Via gettyimages

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The Government Just Made Tens Of Billions Off Of Student Loans

Image Credit: AP

The news: Brace yourselves - the United States federal government made a profit of $41.3 billion off of student loans for the fiscal year of 2013.

That's good for the third highest profit in the nation, behind just Exxon Mobile, which made $44.9 billion in 2012, and Apple, which made $41.7 billion last year. And when accumulated student debt is greater than $1 trillion, to hear that the government is actually making money off of loans will surely make some blood boil.

Not all agree that the federal government makes a profit, though. It depends how you calculate the interest rate yield on student loans. Projections are based on U.S. treasury bonds, which actually set the interest rates for student loans below the market rate, leaving money on the table. It's suggested the current accounting method doesn't totally account for delinquent or defaulted loans, or the risk involved with dispersing these loans (that, if taken into account, would be cause to raise the interest rate on loans). By some calculations, there is actually little profit - or even none at all.

The background: The $41.3 billion profit is actually roughly $10 billion lower than projected back in the spring. In May, profit forecasts showed the federal government stood to make an estimated $51 billion on student loans, which would have cleared even the highest profit-reaping companies in America.

The federal government is the sole provider of student loans, after passing the Student Aid and Fiscal Responsibility Act in 2010. The switch from private bank lending was estimated to save approximately $67 billion over 10 years, but there was concern over profits even back then. "There's a risk of almost treating students like an ATM," warned Becky Timmons, assistant vice president for government relations at the American Council on Education.

Why it matters: Student loans are big business. In 2013 alone, students borrowed around $106 billion in loans. Millions of borrowers are in default on their loans, and the average borrower owes over $14,000 when they default. So it's not great news when the federal government makes headlines for their profits on loans.

But will anything be done? Can anything?

In July, when addressing the projected record profits, Secretary of Education Arne Duncan didn't admit to making a profit off of student loans: "It's actually neither accurate nor fair to characterize the student loan program as making a profit," he said.

And though Congress is expected to address the issue in the near future, considering how long it took lawmakers to tackle interest rates, a concrete deal isn't likely to come any time soon.

Some states are taking student loan matters into their own hands. In July, Oregon voted to begin a "Pay It Forward" program that would essentially eliminate student loans. Students would pay a percentage of their paycheck back after graduation, instead of fronting the cost at the beginning.

At a time when it is as imperative as ever for high school graduates to continue on to college, it doesn't look good when the federal government is profiting off of their debt. The federal student loan program should minimize the amount students owe, not maximize the amount the government makes.

Government books $41.3 billion in student loan profits

Figures come as concerns mount about growing loan debt for students, graduates.

The federal government made enough money on student loans over the last year that, if it wanted, it could provide maximum-level Pell Grants of $5,645 to 7.3 million college students.

The $41.3 billion profit for the 2013 fiscal year is down $3.6 billion from the previous year but it's a higher profit level than all but two companies in the world: Exxon Mobil cleared $44.9 billion in 2012, and Apple cleared $41.7 billion.

STORY: Student loan rates will feed federal profits

"It's actually neither accurate nor fair to characterize the student loan program as making a profit," Education Secretary Arne Duncan said during a July conference call with reporters after the Free Press and other news media reported on profits from student loans.

The department did not return calls or e-mails seeking comment before the story was published, but issued a statement Monday.

"The administration has taken steps to improve college affordability, and thanks to collective efforts, students and families are paying lower rates on their loans today than they would have otherwise," Stephen Spector, U.S. Department of Education spokesman said in an e-mail to the Free Press. "More must be done to bring down the cost of college, and we look forward to continuing to work with Congress, institutions, borrowers, and other stakeholders to make college more affordable."

The numbers track the entire fiscal year that ended Sept. 30. They come as concern continues to mount about the level of indebtedness by college students and graduates. Estimates show more than $1.2 trillion in student loan debt across the nation, more than the nation owes on credit cards.

Congress is expected to take a look at the issue in the coming months.

'Profit' depends on accounting method

In September, the Senate Health, Education, Labor and Pension Committee launched a series of hearings to look at critical issues in higher education ahead of reauthorization of the Higher Education Act, which is set to expire at the end of this year. Among the issues being looked at are the student loans programs, according to Allison Preiss, press secretary for Democratic Sen. Tom Harkin of Iowa, who heads the committee.

Projecting how much money the government will make - or have to pay in a subsidy - on those loans is a tricky, complex formula, based on a variety of factors, experts said.

The federal Credit Reform Act of 1990 set the way the government has to account for its loans. It measures the cash outflow as the disbursement of the principal loan amount and the inflowing money as the payments of interest and principal, minus amounts not paid, plus any fees the government receives from the borrower.

But there are those who say this is a bad way to measure and predict what loans cost the government. They like something called "fair

This summer, Congress directed the Government Accountability Office to conduct a study on the true cost of the federal student loan programs.value accounting," which they say does a better job of factoring in the cost of collecting delinquent or defaulted loans and looking at the risk taken by the government when it lends out money. They say there is actually little to no profit.

Debt's effect on economy

In his call with reporters this summer, Duncan did not get into which method of accounting he prefers, just that he believes the government isn't running the student loan system in order to make money, but rather to help students afford college.

Prospective students tour Georgetown University's campus in Washington, D.C., in July.(Photo: File photo by Jacquelyn Martin, AP)

The large debt numbers have sparked concerns about impact that debt is having on the nation's economy.

"(It) is a burden which is affecting, for example, the ability of many young people to buy a first home, affecting other purchasing decisions they might make, affecting obviously their overall financial condition," Federal Reserve Chairman Ben Bernanke said at a conference earlier this month. "To the extent that there's a lot of student debt held by people who are not working, it's obviously yet another drag on recovery."

Kelly Wilk, a December 2010 graduate from the University of Michigan-Dearborn, feels the impact of her loans all the time. She graduated with about $25,000 in federal loans and now owes slightly more than $22,000, with a monthly payment of $281.

"For some, this payment may not seem too bad," the 25-year-old Livonia resident said. "But for me, it is a huge monthly payment; it is pretty much a car payment or half of rent.

"It was especially difficult at first because I was unable to find full-time employment after college, yet I had to start paying my loans six months after I graduated. So there I was, working two part-time jobs and trying to pay off my loans, which eventually forced me to apply for deferment."

After two years of seeking full-time employment, Wilk said, she was able to land an entry-level job unrelated to her degree in communications.

Loan rates expected to rise

Now it is slightly less difficult to make those payments, but certainly not the easiest," she said. "I have cut back on a lot of spending and only buy the necessities."

A report issued in mid-August by the Department of Education shows that 57% of students received some sort of federal aid, and 41% of all undergrads had taken loans, up from 35% four years ago.

This summer, Congress passed a law tying interest rates on loans to the market. The law set rates for all the loans at different levels, but based them all on the 10-year U.S. Treasury rate and allowed rates to change each year.

For Stafford loans, both the subsidized and unsubsidized, the interest rate is the Treasury rate plus 2.05%, with a cap of 8.25%. Graduate student loan rates are the Treasury rate plus 3.6%, with a cap of 9.5%, and the parent loans are the Treasury rate, plus 4.6%, with a cap of 10.5%.

While offering immediate relief to students, those rates are expected to rise in coming years and give the federal government $175 billion in profits from student loans over the next decade.

That's got students who are paying steamed.

"Instead of making a profit on student loans, why doesn't the government try to help out the millions of students who are struggling financially and at the very least, lower the interest rates?" Wilk said "I don't understand how the government expects this generation to support themselves after graduation, starting out with a mound of debt and in a lot of areas, no job."

Gov't Shows $41.3 Billion in Student Loan Profits

The federal government made enough money on student loans over the last year that, if it wanted, it could provide maximum-level Pell Grants of $5,645 to 7.3 million college students.

The $41.3 billion profit for the 2013 fiscal year is down $3.6 billion from the previous year but it's a higher profit level than all but two companies in the world: Exxon Mobil cleared $44.9 billion in 2012, and Apple cleared $41.7 billion.

"It's actually neither accurate nor fair to characterize the student loan program as making a profit," Education Secretary Arne Duncan said during a July conference call with reporters after the Free Press and other news media reported on profits from student loans.

The department did not return calls or e-mails seeking comment before the story was published, but issued a statement Monday.

"The administration has taken steps to improve college affordability, and thanks to collective efforts, students and families are paying lower rates on their loans today than they would have otherwise," Stephen Spector, U.S. Department of Education spokesman said in an e-mail to the Free Press. "More must be done to bring down the cost of college, and we look forward to continuing to work with Congress, institutions, borrowers, and other stakeholders to make college more affordable."

The numbers track the entire fiscal year that ended Sept. 30. They come as concern continues to mount about the level of indebtedness by college students and graduates. Estimates show more than $1.2 trillion in student loan debt across the nation, more than the nation owes on credit cards.

Congress is expected to take a look at the issue in the coming months.

In September, the Senate Health, Education, Labor and Pension Committee launched a series of hearings to look at critical issues in higher education ahead of reauthorization of the Higher Education Act, which is set to expire at the end of this year. Among the issues being looked at are the student loans programs, according to Allison Preiss, press secretary for Democratic Sen. Tom Harkin of Iowa, who heads the committee.

'Profit' depends on accounting method

Projecting how much money the government will make - or have to pay in a subsidy - on those loans is a tricky, complex formula, based on a variety of factors, experts said.

The federal Credit Reform Act of 1990 set the way the government has to account for its loans. It measures the cash outflow as the disbursement of the principal loan amount and the inflowing money as the payments of interest and principal, minus amounts not paid, plus any fees the government receives from the borrower.

But there are those who say this is a bad way to measure and predict what loans cost the government. They like something called "fair

This summer, Congress directed the Government Accountability Office to conduct a study on the true cost of the federal student loan programs.value accounting," which they say does a better job of factoring in the cost of collecting delinquent or defaulted loans and looking at the risk taken by the government when it lends out money. They say there is actually little to no profit.

In his call with reporters this summer, Duncan did not get into which method of accounting he prefers, just that he believes the government isn't running the student loan system in order to make money, but rather to help students afford college.

The large debt numbers have sparked concerns about impact that debt is having on the nation's economy.

"(It) is a burden which is affecting, for example, the ability of many young people to buy a first home, affecting other purchasing decisions they might make, affecting obviously their overall financial condition," Federal Reserve Chairman Ben Bernanke said at a conference earlier this month. "To the extent that there's a lot of student debt held by people who are not working, it's obviously yet another drag on recovery."

Kelly Wilk, a December 2010 graduate from the University of Michigan-Dearborn, feels the impact of her loans all the time. She graduated with about $25,000 in federal loans and now owes slightly more than $22,000, with a monthly payment of $281.

"For some, this payment may not seem too bad," the 25-year-old Livonia resident said. "But for me, it is a huge monthly payment; it is pretty much a car payment or half of rent.

"It was especially difficult at first because I was unable to find full-time employment after college, yet I had to start paying my loans six months after I graduated. So there I was, working two part-time jobs and trying to pay off my loans, which eventually forced me to apply for deferment."

After two years of seeking full-time employment, Wilk said, she was able to land an entry-level job unrelated to her degree in communications.

Now it is slightly less difficult to make those payments, but certainly not the easiest," she said. "I have cut back on a lot of spending and only buy the necessities."

Loan rates expected to rise

A report issued in mid-August by the Department of Education shows that 57% of students received some sort of federal aid, and 41% of all undergrads had taken loans, up from 35% four years ago.

This summer, Congress passed a law tying interest rates on loans to the market. The law set rates for all the loans at different levels, but based them all on the 10-year U.S. Treasury rate and allowed rates to change each year.

For Stafford loans, both the subsidized and unsubsidized, the interest rate is the Treasury rate plus 2.05%, with a cap of 8.25%. Graduate student loan rates are the Treasury rate plus 3.6%, with a cap of 9.5%, and the parent loans are the Treasury rate, plus 4.6%, with a cap of 10.5%.

While offering immediate relief to students, those rates are expected to rise in coming years and give the federal government $175 billion in profits from student loans over the next decade.

That's got students who are paying steamed.

"Instead of making a profit on student loans, why doesn't the government try to help out the millions of students who are struggling financially and at the very least, lower the interest rates?" Wilk said "I don't understand how the government expects this generation to support themselves after graduation, starting out with a mound of debt and in a lot of areas, no job."

US government “profits” from student loans in 2013 surpassed $41 billion

AFP Photo / Mario Tama

The US government made enough profit off of student loans in the last year to provide full Pell Grants of over $5,600 to 7.3 million students. But, like many government financial issues, accounting methods complicate the story.

The $41.3 billion student-loan profit for the 2013 fiscal year - which ended on Sept. 30 - is actually down by $3.6 billion from 2012, but still enough to out-profit all but two global companies, Exxon Mobil and Apple.

The numbers give pause since estimates show more than $1.2 trillion in student loan debt exists in the US, more than Americans owe on credit cards.

Yet officials and experts point out that there are various ways of accounting for how the US Department of Education runs the student loan program, and that calling this pure profit is misleading.

The profit number is ultimately tallied by the Congressional Budget Office (CBO) and in what way the CBO chooses to account for the cost of the loan programs can differ. The CBO has traditionally used a procedure mandated in the Federal Credit Reform Act (FCRA) of 1990 to assess the costs of the government's six loan programs. The method can produce large numbers cited in news reports of late about the wild "profits" off student loans.

But the CBO has acknowledged FCRA doesn't account for cost of "market risk," or economic activities that affect if and how borrowers pay back loans. For example, when the economy is in a downturn, borrowers are more likely to be behind on payments, affecting the government's recovery rates and the overall costs of the program for the Education Department.

"It's actually neither accurate nor fair to characterize the student loan program as making a profit," Education Secretary Arne Duncan said in July after new reports on profits from student loans.

Another method - "fair value accounting" - has gained traction with the CBO of late and is touted by experts as giving a more truthful snapshot of the debt programs. The method acknowledges the market risk inherent in lending, and its outcomes show a big difference in government profit. Using it, the 2013 profit goes down to more than $5 billion rather than the over $40 billion being reported by many news outlets. Add previous-year estimates using the method and routine administrative costs, the claims of profit lose a lot of bite. Proponents of this accounting method say there is little to no profit involved in the programs.

This summer, Congress directed the government's watchdog research agency - the Government Accountability Office - to evaluate the true cost of the federal student loan programs.

In addition, Congress and President Obama agreed this summer to temporarily lower interest rates on student loans, tying rates on loans to the market. Had they not done so, the Education Department's 2013 profits would have been about $8 billion higher, according to the CBO. Yet the temporary relief will come to an end in coming years, as rates are expected to rise.

Gains off loans in 2013 comprised nearly half of the Education Department's total outlays, the biggest share since at least 1997.

Effectively subsidizing half of the agency's total operations, the profits have enabled Sec. Duncan to reduce the Education Department's total cost to the smallest amount since 2001.

The Education Department spent $40.9 billion in 2013, nearly a third less than 2012 and the lowest reported amount since the first year of George W. Bush's presidency, according to the Treasury Department.

Student loan profits last year exceeded the amount of money for federal Pell Grants given to low-income college students, according to budget documents. The administration has increased Pell Grant funding in part due to reduced costs of student loans, giving the appearance of one group of students subsidizing another.

Senate Majority Leader Harry Reid (D-NV) expressed concern over this in June, saying Democrats "don't think there should be deficit reduction based on the backs of these young men and women who are trying to go to college."

Congress plans to explore student debt issues in coming months.

In September, the Senate Health, Education, Labor and Pension Committee began a series of hearings on critical higher education issues, including loan programs.

The average federal student loan holder is more than $26,000 in debt, a nearly 43 percent increase from 2007. Since that year, outstanding federal student loans have almost doubled, worrying Treasury and Federal Reserve officials.

"(It) is a burden which is affecting, for example, the ability of many young people to buy a first home, affecting other purchasing decisions they might make, affecting obviously their overall financial condition," Federal Reserve Chairman Ben Bernanke said earlier this month. "To the extent that there's a lot of student debt held by people who are not working, it's obviously yet another drag on recovery."

The Education Department told the Detroit Free Press Monday that the Obama administration has strived to alleviate debt for students and families.

"The administration has taken steps to improve college affordability, and thanks to collective efforts, students and families are paying lower rates on their loans today than they would have otherwise," Stephen Spector, US Department of Education spokesman said. "More must be done to bring down the cost of college, and we look forward to continuing to work with Congress, institutions, borrowers, and other stakeholders to make college more affordable."

Student

By Lisa Hagen, Sun Statehouse Bureau

Updated: 11/25/2013 06:36:15 AM EST

BOSTON -- State Sen. Eileen Donoghue has been crisscrossing the state this fall to hear concerns from colleges, students and families about a central issue: student loans and debt.

Donoghue, chairwoman of the Subcommittee on Student Loans and Debt, is concerned about the unaffordability of college. Her committee is also working with U.S. Sen. Elizabeth Warren and U.S. Rep. John Tierney to tackle federal loans and rising interest rates.

Funding to Massachusetts state colleges and universities has plunged over the past decade, but this year, the Legislature appropriated $1.1 billion in funding, allowing state universities to freeze tuition and fees. The funding saw an increase of 8.3 percent from fiscal 2013, adjusted for inflation, according to the Massachusetts Budget and Policy Center.

"This was one step in the right direction, but we have a long way to go to make up for the cuts," said Donoghue, a Lowell Democrat. "It is also the responsibility of the colleges themselves to rein in the costs and work more collaboratively."

A hearing at UMass Lowell on Sept. 23 opened the first in a series of seven such forums to listen to suggestions for ways to make college more affordable.

Donoghue stressed the need for financial literacy so parents and students understand from the beginning the different types of loans available and how they will have to pay for them.

Donoghue also mentioned a program that allows dual enrollment in both high school and college by allowing current high-school students to take community-college courses so they can receive college credit before they graduate.

"The American dream, so to speak, is alive, and there is a strong desire for higher education," she said. "But the most discouraging and heartbreaking scenarios are the students who go to school for a couple of years, acquire debt, and drop out with no degree and no job."

UMass Lowell Chancellor Marty Meehan, who testified at the hearing, said in an interview later that the school has such programs as a first-year financial-literacy seminar and opportunities for a co-op so students can make money in their fields while in school.

"We have programs so that students are more vigilant about what they borrow and be careful about how they borrow and plan to pay it back," Meehan said. "I think putting focus on this issue is extremely important because parents and students are deciding where they're going to college like how to buy a home or a car."

Robert Antonucci, president of Fitchburg State University, who testified at a hearing Nov. 8 in Worcester, said in an interview that his school uses alternative revenue streams, such as raising money through its foundation to fund scholarships. He also said there are between 30 and 40 students enrolled at Mt. Wachusett Community College in Gardner who are transported to the school every day to take classes and use the facilities as a form of cost containment.

"You don't use money as a reason for students to not go to school," he said. "Everyone recognizes the responsibility to do our part, and we have to keep an eye on the ball."

Antonucci said his school, along with three others in central Massachusetts, formed a consortium called Central Links to operate jointly with such tasks as grant writing.

Donoghue also heard testimony in support of encouraging students to attend community colleges. Many public universities have agreements with community colleges so students can transfer after two years with full credits and graduate from a 4-year college.

Carole Cowan, president of Middlesex Community College, who also attended the Lowell hearing, said in an interview that her school awards $900,000 a year in institutional aid for those who don't quality for Pell grants. She said 13 percent of students enrolled took out some form of a loan last year, and the average student left with a debt of $5,000.

"I think it's a positive thing happening that colleges themselves are working on operational efficiencies and statewide initiatives, working together to lower costs on individual campuses," Cowan said.

Middlesex Community College, which has campuses in Lowell and Bedford, had about 300 students transfer to UMass Lowell for the current semester, according to UMass Lowell's media-relations office.

Donoghue said that when the hearings conclude next month, the subcommittee will compile the information and testimony into a report she hopes will be ready by March.

From there, the report will go to the Joint Committee on Higher Education with possible legislation connected to their findings.

Five years of falling family debt ends

The rising cost of student borrowing meant that households sank further into debt this year for the first time since the financial crisis, a report has found.

Households' non-mortgage debt grew by 4 per cent in 2013 to £216billion, marking the first increase for five years and taking the average sum families owe to £8,159, according to a report by PwC.

Taking student debt out of the figures wiped £2,259 off the typical amount households owe, bringing the average amount to £5,900 and meaning that underlying consumer debt remained flat.

The report estimated that students who started university last year will on average graduate with £40,000-£50,000 worth of debt, which is likely to have a big impact on family finances and could crush dreams of getting on the property ladder.

Simon Westcott, a director in PwC's financial services practice, said: "Although student loans are provided on very favourable rates, this significant increase in student debt is likely to have profound effects on graduates' future borrowing."

Separate research published last week showed graduates are earning 12 per cent less than those who left university before the financial crisis.

Salaries among higher education leavers have got progressively smaller every year since the crisis, while tuition fees almost tripled last year to a maximum of £9,000 a year, according to research by the Financial Times. Student debt, meanwhile, rose by 60 per cent on average between 2008 and 2012, it was claimed.

Student

By Lisa Hagen, Sun Statehouse Bureau

Updated: 11/25/2013 06:36:15 AM EST

BOSTON -- State Sen. Eileen Donoghue has been crisscrossing the state this fall to hear concerns from colleges, students and families about a central issue: student loans and debt.

Donoghue, chairwoman of the Subcommittee on Student Loans and Debt, is concerned about the unaffordability of college. Her committee is also working with U.S. Sen. Elizabeth Warren and U.S. Rep. John Tierney to tackle federal loans and rising interest rates.

Funding to Massachusetts state colleges and universities has plunged over the past decade, but this year, the Legislature appropriated $1.1 billion in funding, allowing state universities to freeze tuition and fees. The funding saw an increase of 8.3 percent from fiscal 2013, adjusted for inflation, according to the Massachusetts Budget and Policy Center.

"This was one step in the right direction, but we have a long way to go to make up for the cuts," said Donoghue, a Lowell Democrat. "It is also the responsibility of the colleges themselves to rein in the costs and work more collaboratively."

A hearing at UMass Lowell on Sept. 23 opened the first in a series of seven such forums to listen to suggestions for ways to make college more affordable.

Donoghue stressed the need for financial literacy so parents and students understand from the beginning the different types of loans available and how they will have to pay for them.

Donoghue also mentioned a program that allows dual enrollment in both high school and college by allowing current high-school students to take community-college courses so they can receive college credit before they graduate.

"The American dream, so to speak, is alive, and there is a strong desire for higher education," she said. "But the most discouraging and heartbreaking scenarios are the students who go to school for a couple of years, acquire debt, and drop out with no degree and no job."

UMass Lowell Chancellor Marty Meehan, who testified at the hearing, said in an interview later that the school has such programs as a first-year financial-literacy seminar and opportunities for a co-op so students can make money in their fields while in school.

"We have programs so that students are more vigilant about what they borrow and be careful about how they borrow and plan to pay it back," Meehan said. "I think putting focus on this issue is extremely important because parents and students are deciding where they're going to college like how to buy a home or a car."

Robert Antonucci, president of Fitchburg State University, who testified at a hearing Nov. 8 in Worcester, said in an interview that his school uses alternative revenue streams, such as raising money through its foundation to fund scholarships. He also said there are between 30 and 40 students enrolled at Mt. Wachusett Community College in Gardner who are transported to the school every day to take classes and use the facilities as a form of cost containment.

"You don't use money as a reason for students to not go to school," he said. "Everyone recognizes the responsibility to do our part, and we have to keep an eye on the ball."

Antonucci said his school, along with three others in central Massachusetts, formed a consortium called Central Links to operate jointly with such tasks as grant writing.

Donoghue also heard testimony in support of encouraging students to attend community colleges. Many public universities have agreements with community colleges so students can transfer after two years with full credits and graduate from a 4-year college.

Carole Cowan, president of Middlesex Community College, who also attended the Lowell hearing, said in an interview that her school awards $900,000 a year in institutional aid for those who don't quality for Pell grants. She said 13 percent of students enrolled took out some form of a loan last year, and the average student left with a debt of $5,000.

"I think it's a positive thing happening that colleges themselves are working on operational efficiencies and statewide initiatives, working together to lower costs on individual campuses," Cowan said.

Middlesex Community College, which has campuses in Lowell and Bedford, had about 300 students transfer to UMass Lowell for the current semester, according to UMass Lowell's media-relations office.

Donoghue said that when the hearings conclude next month, the subcommittee will compile the information and testimony into a report she hopes will be ready by March.

From there, the report will go to the Joint Committee on Higher Education with possible legislation connected to their findings.

£900m student loans sold to debt collectors: Move prompts fears students from ...

Almost 15,000 people have signed an online petition against the plans The sell-off comes just weeks after the controversial sale of Royal Mail Shares shot up since sale - some are concerned they were undervalued

By Daniel Martin

PUBLISHED: 20:27 EST, 24 November 2013 | UPDATED: 20:27 EST, 24 November 2013

Ministers are to sell off almost £1billion in student loans to a private debt collection agency.

The London Stock Exchange will be told this morning that the Government has agreed a deal to privatise £900million-worth of loans made to students who went to universities in the 1990s.

The move will lead to fears that the private firm will be much less sensitive in chasing debts, and could hound those facing financial problems to pay up - even more than two decades after they went to university.

Almost 15,000 people have signed an online petition against the plans, saying it will simply allow private companies to profit at the expense of poor former students.

The sell-off comes just weeks after the controversial sale of Royal Mail.

Shares have shot up since the sale, leading to concerns they were massively undervalued.

The controversy could be repeated with student loans because it is reported that the sale will be for a fraction of the debt's value.

The e-petition on the Downing Street website says: 'By selling outstanding loans to the private sector, the Government would lose a long-term source of revenue to the Treasury, sacrificing it for meagre short-term gain and potentially leaving private financial companies to profit without investing back into the UK economy.

'Coupled with proposals to remove the cap on student loan interest rates, this would saddle many UK graduates with loans they would be unable to repay during their working lives.'

The disposal, to a debt recovery specialist, will be for a fraction of the debts' face value, and encompasses mortgage-style loans that are the last of their kind still in public ownership.

The sale, which does not include Income Contingent Repayment loans like the ones currently offered, comes as student groups step up their protest over the disposal of the loan portfolios.

The Coalition is drawing up plans to sell the entire outstanding student loan-book, which has a face value of roughly £40bn.

Investment bankers from Barclays and Rothschild were appointed by the Department for Business, Innovation and Skills last month to oversee the sale.

The terms and conditions for borrowers who took out mortgage-style loans will not change as a result of the sale.

Danny Alexander, the chief secretary to the Treasury, said during the summer that the Government hoped to raise £10billion from the sale of corporate and financial assets such as the student loan book by 2020.

Speaking in March, when the mortgage-style student loan auction was initiated, David Willetts, the universities and science minister, said: 'Selling the remaining mortgage-style student loans will allow us to reduce public debt and maximise the value of one of the Government's assets.

'The private sector's expertise makes it well-placed to collect this debt and the sale will also help the Student Loans Company to concentrate on providing loans to current students.'

The low recovery rate on the 1990s loans means the sale price is likely to be only in the tens of millions of pounds, reflecting the distressed nature of the debts, people close to the situation said on Sunday.

The mortgage-style loans were available between 1990 and 1998, with two tranches sold in 1998 and 1999. Repayments on them can be deferred for a year at a time if borrowers' income is below 85% of the national average earnings.

'The remaining loans owned by the Government are mostly in deferment or in arrears, so total annual repayments are low,' BIS said in March, adding that it was likely to receive significantly less than £900million from a buyer.

Student loans: Lessons learned, choosing a major, and overcoming regrets

Editor's note: This blog originally ran on the personal finance blog Get Rich Slowly. It has been reprinted here with permission.

In 2009, Kasey O. graduated college with a Bachelor's of Fine Arts in Media Arts & Animation. With the support of her family, friends, school guidance counselors, and high school teachers, she had finally earned a college degree in a field that fulfilled her passion. Kasey was proud, hopeful, and ready to begin her dream career. But unfortunately for Kasey, things weren't exactly what they seemed.

What Kasey didn't know was that she had borrowed nearly $80,000 for her degree. She didn't realize that interest accrued while she was in school either, which came as quite as a surprise. Upon graduation, the interest on Kasey's student loans capitalized, leaving her just under $100,000 in debt. And, even after making over $17,000 in payments over the last three years, Kasey still owes around $95,000.

Kasey's student loan debt remains a hardship to this day, mainly due to the fact that she's never been able to find employment in her field. But, even if she had, it's unlikely that she would be much better off.

"During my final quarter, there was a graduate meeting where they went over the job prospects of the past years' graduates. The average grad in my field was making less than $26,000, nowhere near the $56,000+ mark they put on my degree when I first applied," says Kasey.

A surge in student loan debt

Although Kasey's story may seem outrageous, her situation is way more common than many realize. As it currently stands, the average student loan debt is hovering around $27,000. And, even though the costs of higher education are reportedly slowing down, they're still increasing at twice the rate of inflation, making it increasingly difficult for families to keep up. According to the Institute for Colleges Access & Success (TICAS), student loan debt has tripled to $1.1 trillion dollars over the past eight years, with the percentage of 25-year-olds carrying student loan debt rising as well, from 25 percent to 43 percent.

Of course, Kasey knows that her debt load isn't the norm. After all, not everyone is unfortunate enough to owe six figures at the age of 24. Now 28, Kasey blames her (much) higher-than-average student loan debt on the fact that she went to a for-profit school, and that she was young and naïve when she made these life-altering decisions.

"Going to a for-profit school was the biggest mistake of my life, and it'll likely continue to affect me beyond retirement, if I even get to retire," says Kasey. Since student loans cannot be discharged in bankruptcy, Kasey continues to focus on paying her private student loans first since her federal loans are under Income Based Repayment. Kasey's federal loans will reach forgiveness in 2035. By then, she'll be 50 years old.

Is six-figure student loan debt ever a good idea?

Richard C. also borrowed six figures for college, with a starting balance of $107,000 after loan consolidation. For a six-figure price tag, he earned a bachelor's degree from Cornell University and a master's degree from Albany Medical College. Like Kasey, Richard's student loans are also on a multi-decade repayment plan, with the final pay-off date scheduled many years down the road. Also like Kasey, Richard wasn't fully aware how much he was borrowing at the time.

"I realized I spent too much while trying to gather all my separate loans together for my consolidation," says Richard. "To be perfectly honest, I really didn't have ANY idea that I had amassed six figures in school loans. When I got my MINIMUM monthly payment quote from Nelnet, I couldn't believe what I had done."

Richard blames his high debt load on a handful of factors that he didn't recognize until it was far too late.

"First off, I would have not gone to Cornell," says Richard. "A local state school would have sufficed just as well." He also wishes that he would have made saving a priority during the six years he took off between degrees. "I had six years. If I could have saved 10 grand per year, I wouldn't be in the predicament I'm in now."

However, Richard's situation isn't hopeless. Since he earned his master's degree as a P.A., or physician's assistant, he now earns a salary of about $115,000 per year. His choice of major, or "saving grace" as he calls it, remains the reason why he doesn't necessarily feel hindered by his enormous debt load. After all, $115,000 is plenty of money to repay his student loans, save, and retire in a reasonable amount of time, according to Richard.

"Making smart decisions has allowed me to save about $115,000 in retirement accounts (403(b) and Roth IRA)," said Richard. "I also have about $30,000 saved in a taxable account as well. I accomplished all this in the past five years by spending wisely and making saving a priority." And, despite his huge debt load, Richard's family has an after-tax savings rate of around 52 percent.

Lessons learned

Kasey and Richard's experiences are full of lessons - some obvious, some not so much. First of all, both stories illustrate the importance of choosing a college major that makes financial sense. Due to changes in technology and the workforce, the advice to "follow your passion" may no longer be advantageous to your career or your financial situation.

Of course, if you want to follow your passion, you still can.But, like Kasey, your passion may end up costing far more than it's worth. According to a recent study from Georgetown University, a degree in fine arts brings in an average starting salary of $30,000. Making matters worse is the fact that unemployment for fine arts majors currently stands at around 12.6 percent. How's that for adding insult to injury?

Another study from Georgetown University reports that the highest-paying college majors are currently in engineering and technology, with the top-paying spots filled by petroleum engineers ($120,000), Pharmacy Pharmaceutical Sciences and Administration ($105,000), and Mathematics and Computer Science ($98,000). Since this study focused solely on careers that can be attained with a bachelor's degree, physician's assistants weren't mentioned. However, Forbes listed the P.A. degree as the " No. 1 Best Master's Degree For Jobs " last year, with a mid-career median pay of $97,000.

But, what about student loan debt? Kasey and Richard both admit that they borrowed way more than they ever understood or planned for. Fortunately, some basic tips have been established by sources that have a would-be student's best interest at heart. One of them, the Project on Student Debt, hopes to "identify cost-effective solutions that expand educational opportunity, protect family financial security, and advance economic competitiveness."

According to the Project on Student Debt, students need to "look before they leap" when borrowing money for school. Some other tips:

If you have to borrow money for college, the Project on Student Debt recommends to start with federal student loans, instead of private. "Interest rates on federal loans don't change over time and aren't affected by your credit rating. Federal loans also come with some guaranteed borrower protections in case you're unemployed or have other financial problems after college." Shop around and beware of private student loans in disguise. "Some schools put their own name on private loans, or the loans may have other brand names that make them look safer than they really are. Lenders often offer both federal and private loans, so make sure you know what you're getting before you sign on the line." The Project on Student Debt also suggests that students read all the fine print in order to understand how much they're borrowing and what they're really signing up for. "Get the full terms of what the preferred lender or lenders have to offer before you make any commitment." Kasey and Richard also have relevant advice to offer in light of their real-life student loan debt nightmares. According to Richard, the most important thing a future college student can do is to pick a college major that will lead to a well-paying career. "This is the one thing I did correctly and perhaps my saving grace," says Richard. "One thing people forget is that if they like things like art, they can fulfill that passion through a hobby."

And while Kasey wishes that she had followed Richard's advice, she's now left without a whole lot of options. She has many regrets and wishes she had taken more time to research her school, tuition costs, and career outcomes. So, what's Kasey's advice?

Educate yourself.

"Take the time to explore possibilities and to educate yourself, especially about student loans, for-profit schools and borrowing wisely. Know the difference between federal subsidized and unsubsidized loans," says Kasey.

Kasey hopes that her story serves as a cautionary tale for students who are ready to sign on the dotted line. If she had the chance to do it all again, she would've taken some time to decide what she really wanted before committing to a lifetime of debt.

"I would have taken several years off from school to learn skills on my own, work various jobs/volunteer to gain experience and to gauge what it is I truly like doing, save money, take the time to research schools (which for-profit schools to avoid), degree programs, and how student loans work," says Kasey. Unfortunately for Kasey, it's far too late.

How much student loan debt do you still have? What is your plan for paying it off? What advice do you have for would-be college students who need to borrow money to go to school?

Holly Johnson is a wife, mother of two and frugal lifestyle enthusiast. On top of writing and running her own blog, Club Thrifty, she also works in a mortuary with her husband and is the queen commander of her household.

Resetting the Trillion

SOURCE: AP/Ryan J. Foley

Endnotes and citations are available in the PDF version of this issue brief.

Introduction

In ever-increasing numbers, students enrolled in our nation's colleges and universities are borrowing to meet educational expenses. As college costs rise, so too does the amount each student is borrowing. While federal student loans can be consolidated, these and private loans cannot be refinanced. If refinancing of student loans were available, borrowers could see significantly reduced monthly payments; lenders-including the federal government-could see increased repayment rates; and we all could see more economic activity, as a portion of each student-loan borrower's income could be spent in other sectors of the economy or saved for larger purchases. In this issue brief, we review a number of proposals pending before Congress and recommend a number of elements that need to be included in a plan to permit student-loan refinancing.

Student-loan debt in America

Our higher-education financing system has become increasingly dependent on debt. Data from the Department of Education illustrate the precipitous growth of debt over recent years. In the 2011-12 academic year, 40 percent of undergraduates borrowed under federal student-loan programs-an increase of 18 percent since 2004 and 15 percent since 2008. More troubling is the fact that among those borrowing, the average amount borrowed in 2012 was nearly $7,800, up 44 percent from the 2004 amount of $5,400 and up 26 percent from the 2008 amount of $6,200. (see Figure 1) These figures represent just one year of borrowing; total borrowing levels for degree completion are likely to be substantially higher.

Consider this: It took 23 years for federal student-loan programs to lend their first $100 billion. Now, the federal government lends substantially more than that each year, and more than $1 trillion in federal student loans are outstanding. Of those outstanding loans, only 60 percent of borrowers in repayment were actually making their scheduled payments. The remaining 40 percent were in deferment, forbearance, or default, indicating that the borrowers are in distress. (see Figure 2)

Fluctuations in student interest rates and growing evidence of borrower distress in federal student-loan programs and the portfolios of private loan providers suggest that new and aggressive policy solutions should be enacted, ensuring that repayment terms remain manageable and students are able to make progress in retiring their debt. Allowing students to refinance their loan debt and take advantage of newly established lower rates could reduce the number of students in distress.

Further data released by the Department of Education provide clear evidence of the difficulty that many graduates are having in repaying their student loans. Repayment rates measure the share of students in a program that are able to make payments on their loans that reduce the principal balance by at least $1 in a given year. The Department of Education examined 1,930 associate's degree programs at for-profit institutions of higher education and found a median repayment rate of 29 percent. This rate means that fewer than 3 in 10 students were able to make payments that reduced their loan balance and that half of the programs measured at that degree level had an even lower rate. Of 732 for-profit bachelor's degree programs measured, the median repayment rate was 38 percent, while the 4,567 undergraduate certificate programs at all types of postsecondary institutions had a median rate of 39 percent. Graduate degree programs at for-profit institutions had median rates ranging from 43 percent to 47 percent. The program level with the highest median rate-71 percent-was the post-baccalaureate certificate level at all types of postsecondary institutions. (see Figure 3)

The Department of Education also calculated the debt-to-earnings ratios for graduates of programs that must, under the Higher Education Act of 1965, lead to gainful employment in a recognized occupation to ensure that student borrowers earn enough money to support the level of debt needed to pay for their education. The programs are organized by Classification of Instructional Programs, or CIP, codes, which are designed to track fields of study in postsecondary education. An analysis of programs at all levels by CIP code identified five areas in which students had the most trouble achieving earnings that covered their debt. In these areas of study, most programs were unable to pass the bare-minimum threshold that would allow students enrolled in them to continue to be eligible for federal student-aid programs, and even fewer programs had low levels of debt that would allow students to contribute to the economy.

The Federal Reserve Bank of New York has become increasingly concerned about the levels of student-loan debt. In addition to the $1 trillion in outstanding federal student loans, the bank estimates that more than $200 billion in private education loans are outstanding. Information from one lender suggests that more than 9 percent of all loans in repayment are delinquent, with 4.6 percent delinquent by more than 90 days. An additional 3.5 percent of loans in repayment are in forbearance, and another 3.4 percent are charge-offs-they have been delinquent for so long that financial institutions no longer expect to collect them and consider them losses. This accounting suggests that more than $34 billion of outstanding private loans-15.9 percent-are distressed. An analysis by the Consumer Financial Protection Bureau estimated that 7 million people are in default from a federal or private student loan.

As we observed in our report, "A Comprehensive Analysis of the Student-Loan Interest-Rate Changes that Are Being Considered by Congress," student-loan interest rates have significantly fluctuated in recent years. This fluctuation reflects the changes in the cost of capital and in servicing student-loan debt overtime. In that analysis, we suggested that refinancing options could be provided to permit existing borrowers to move into the new approach to setting interest rates. This would allow borrowers that currently have interest rates as high as 8.25 percent to move down to the newly established rate. We suggested that it would be possible to defray some of the cost of refinancing by assessing borrowers a one-time fee or charging a slightly higher interest rate, similar to the current consolidation loans. Our recommendation was consistent with a report issued by CAP earlier this year in which we pointed out that homeowners, corporations, and state and local governments were taking advantage of the current historically low interest rates by refinancing their debt.

But student-loan debts are difficult to refinance. In the past, under the bank-based Federal Family Education Loan Program, lenders would occasionally take matters into their own hands, lowering interest rates below the maximum level set by law. Lenders often lowered the interest rates selectively-picking and choosing to which students they gave lower interest rates. The secretary of education had the authority to lower interest rates in order to encourage on-time repayment, but that authority-except as an incentive to encourage the use of Electronic Funds Transfer, or EFT-was eliminated in the Budget Control Act of 2011, making it impossible to address inequities in student-loan interest rates through executive action. Recognizing the severity of student-loan delinquency, federal bank regulators encouraged financial institutions to work with troubled private-loan borrowers.

Last fall, the Consumer Financial Protection Bureau released a report that highlighted the fact that borrowers with private student loans have few repayment options, noting that, "By far, the most common concern communicated by borrowers is the difficulty they have negotiating a repayment plan with their servicer in periods of unemployment, underemployment, or financial hardship." Borrowers also expressed frustration that there are few "workable" repayment plans or refinancing options available for private loans.

Providing student-loan borrowers the opportunity to refinance their debt is a way to solve a significant portion of the growing student-debt problem. Refinancing could significantly reduce monthly payments, increase repayment rates, and stimulate the economy by freeing up a portion of each student-loan borrower's income that could be spent in other sectors of the economy or saved for larger purchases.

The Federal Reserve Bank of New York has studied spending patterns and observed that those with student-loan debt are less likely to borrow to buy a home or car. In an April 2013 report, it concluded that for the first time in at least 10 years, 30-year-olds with no history of student loans were more likely to have home-secured debt than those with a history of student loans and that by the fourth quarter of 2012, student borrowers were actually less likely to hold auto debt than those with no student-loan debt.

Student-loan debt also holds back the nation's housing recovery. Two million more adults ages 18 to 34 now live with their parents than before the recession. Each new household formed leads to an estimated $145,000 of economic activity, according to Moody's Analytics. Student-loan debt may also be partially responsible for the decline in the national homeownership rate, which recently reached an 18-year low.

Addressing the problem

As important as these economic issues are for young adults, addressing the student-loan debt problem could boost trust in government among young Americans. Congress has begun to take note of the problems, with legislators offering four proposals to allow refinancing of existing student debt. Below, we describe these proposals and provide an analysis of each proposal. Taken together, these proposals provide a way forward to meaningfully address the need to reduce the monthly payments of millions of borrowers with existing student loans.

The Responsible Student Loan Solutions Act, proposed by Sen. Jack Reed (D-RI), Sen. Dick Durbin (D-IL) and Rep. John Tierney (D-MA)

Sens. Reed and Durbin and Rep. Tierney take a straightforward approach to addressing the refinancing of federally held or guaranteed student loans. The Responsible Student Loan Solutions Act was primarily designed to reset student-loan interest rates at the 91-day Treasury bill level, with an add-on percentage determined by the secretary of education to cover program administration and borrower benefits. Under the plan, interest rates for need-based, subsidized federal loans would be capped at a maximum of 6.8 percent. Rates for unsubsidized and parent loans would be capped at a maximum of 8.25 percent.

The Responsible Student Loan Solutions Act would also give the secretary of education the authority to reissue federal Stafford and PLUS loans at the same lower interest rate plus a markup for the cost of servicing. Under the bill, administrative costs can equal a maximum of 0.5 percent of the loan principal.

Federal Student Loan Refinancing Act, proposed by Sen. Kirsten Gillibrand (D-NY)

In the Federal Student Loan Refinancing Act, Sen. Gillibrand proposes permitting consolidation of all federal loans-Direct Loans and Federal Family Education Loans, whether held by a bank or the federal government-into a new loan at an interest rate of 4 percent or less. The secretary of education would notify borrowers with only Direct Loans of the consolidation at the lower interest rate within 90 days of enactment. For all other borrowers, the secretary would send a completed application for a consolidation based on information in the National Student Loan Data System within 90 days. The borrower would have six months to return the application for a consolidation loan.

If a borrower is in the process of earning a benefit at the time of consolidation-including through participation in Public Service Loan Forgiveness, reduced monthly payment programs, or other repayment plans-the borrower would remain on track to receive the benefit.

Student-loan refinancing proposal by Rep. Mark Pocan (D-WI)

In the House of Representatives, Rep. Pocan proposes legislation similar to that of Sen. Gillibrand. This bill, introduced in August 2013, provides refinancing options for student borrowers under the newly variable interest rate that was enacted in the Bipartisan Student Loan Certainty Act of 2013. That law reset the interest annually at the level of the 10-year Treasury note plus an add-on to offset costs associated with running the program; interest rates are capped based on loan type. Rep. Pocan's proposal states that any student with Direct Loans would be allowed to refinance his or her loans to the rate that a new borrower faces at the time of modification. This new rate would be fixed until such time that the borrower chooses to modify his or her loans again.

Refinancing Education Funding to Invest, or REFI, for the Future Act, proposed by Sen. Sherrod Brown (D-OH)

Sen. Brown has proposed legislation that would address the issues specific to private student loans. Under Sen. Brown's REFI for the Future Act, the secretary of the Treasury would have the ability to purchase private loans or participation interests in private loans or provide a liquidity backstop for private student loans. Appropriately structured, these purchases are designed to eliminate inefficiencies in the private student-loan market and accommodate reasonable refinancing opportunities for private student-loan borrowers.

Sen. Brown's bill is modeled after the authority granted in the Ensuring Continued Student Loan Access Act. Under this act, the secretary of education purchased more than $110 billion in Federal Family Education Loans, or FFELs, over the course of three fiscal years, freeing up capital that could be used to make additional student loans.

If enacted, the REFI for the Future Act would encourage greater competition, innovation, and participation of private capital in a currently stagnant private student-loan refinancing market and create opportunities for private student-loan borrowers to take advantage of the current low interest rates, which will ensure that some borrowers pay rates that reflect their credit risk. By reducing the amount that private student-loan borrowers must pay, this plan can ensure they may pursue economically productive activities such as buying a home or starting a small business.

Streamlining loan information and payment mechanisms

Each of the three pieces of legislation that have been offered addresses a portion of the student-loan consolidation puzzle.

What is needed, however, is a solution that is easy for student-loan borrowers to navigate. Too often, student-loan borrowers do not know what kind of loan they have. While no bank-based FFELs were issued after July 1, 2010, students will still have difficulty determining which are Federal Direct Student Loans, which are FFELs, and which are truly private loans. For this reason, Congress needs to mandate that the secretary of education develop a portal that all student-loan borrowers can use to access information on their loans. This portal would largely be built with information from the National Student Loan Data System, or NSLDS. However, information about private student loans would be needed to augment the information in NSLDS. Requiring lenders to report all private student-loan disbursements to the secretary for inclusion in NSLDS would address this limitation and give policymakers and the public a more complete picture of how student borrowers are faring.

From this portal, each student-loan borrower could be provided with information about the range of consolidation and refinancing options available. In the case of federal student loans, borrowers should be provided the best-possible loan interest rate. In the case of borrowers that took out loans prior to July 1, 2013, if the rate they face is higher than current rates, the interest rate could be written down to the new level plus a small transaction fee. Borrowers that take out student loans under the new statutory formula should have their interest rate reset upon graduation if the interest rate would lower the weighted average of the loans taken out.

In the case of students with a mix of federal and private loans or just private loans, a model similar to that proposed by Sen. Brown seems appropriate. Under this approach, a conduit structure could be created into which lenders could place loans with the interest rate written down to assist borrowers. Loans placed in such a structure would have to have other terms and conditions to make them more like federal loans, such as death and disability insurance protections and the availability of deferments and forbearances and income-based repayment options. Upon a loan's placement in the conduit, the lender would be paid a small percentage of the outstanding amount so that the federal government has a financial interest in the loan.

If a loan placed in the conduit becomes delinquent, the Treasury secretary would buy out the private lender for its remaining interest on the loan. The amount paid for the remaining interest would never be the full value of the loan but would reflect the lender holding a portion of the risk. (see Figure 4)

Such an approach would ensure that lenders are making private student loans with liquidity well beyond what would be available in the current market and provide the federal government with a performing asset if the lender needed to exercise its liquidity option.

In order to provide borrowers with the best possible interest rate, servicing risk needs to be minimized. For this reason, new passive collection mechanisms should be explored. Such a passive system could use the tax withholding system as the default mechanism for collecting student loans. Passive payment could include automatically enrolling eligible students in reduced monthly payment programs, such as Income-Based Repayment, or IBR; or Pay As You Earn, or PAYE-or, more extensively, could use the tax system to automatically deduct income-adjusted student-loan payments from gross earnings. This structure would also significantly reduce the servicing cost, allowing the funds currently used to support the collection system to be used for more constructive purposes such as increasing Pell Grants to reduce student indebtedness.

Permitting refinancing of student loans will lower returns for taxpayers, in the case of federal loans, and for investors, in the case of private loans, in the short term. As the New York Federal Reserve Bank concluded with regard to home mortgages, however, the macroeconomic effects of additional money in student-loan borrowers' pockets will more than offset those losses. As a result, student-loan refinancing will likely not simply be a zero-sum transfer from taxpayers and investors to borrowers. Indeed, the evidence the New York Federal Reserve Bank has developed related to home mortgage loans has direct applicability; we believe, with respect to student loans, it means that borrowers relieved of some interest expenses will spend or invest those savings, stimulating economic growth.

Conclusion

Given the growing amount of student loans entering repayment, it is critically important to provide refinancing options for student-loan borrowers. An internal analysis by the Center for American Progress estimated that student-loan borrowers who currently face rates greater than 5 percent could save as much as $14 billion per year, resulting in significantly reduced monthly payments if they are able to refinance their student loans. Additionally, these borrowers likely would spend or save for larger purchases, increasing economic activity overall by as much as $21 billion. For this reason, it is critical that Congress move quickly to create opportunities for refinancing student loans while the cost of capital remains low.

David A. Bergeron is the Vice President for Postsecondary Education at the Center for American Progress. Elizabeth Baylor is the Associate Director for Postsecondary Education at the Center. Joe Valenti is the Director of Asset Building at the Center.

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Student loans worth £900m to be sold off

The government is expected to press ahead with the sale of some of the student loan book - a decision that is likely to spark protests across university campuses because of fears that it will increase the financial burden on those studying for degrees.

The government announced in June that it planned to sell student debt to private companies before the election. The sale will cover £900m of debt on loans taken out by students, mainly in the 1990s.

There have been two previous sales of student debt but this one, confirmed by the Treasury chief secretary Danny Alexander, will be the largest and will help reduce net public debt.

The deal would encompass mortgage-style loans made in the 1990s, the last of their kind still in public ownership, but not the income-based repayment loans of the kind currently offered by the government.

The plan will do little to endear the Liberal Democrats to students 18 months away from an election. But Nick Clegg may have decided the student vote is largely a lost cause after he felt forced to break his pre-election pledge in 2010 not to increase student tuition fees.

Ultimately, the coalition wants to sell the entire stock of student debt, which has a face value of £40bn. There has been concern that this can only be profitable for private companies in the long term if the cap on interest for repayments is raised, increasing the cost of student debt.

Both the universities minister, David Willetts, and the business secretary, Vince Cable, have said any private company that buys the student debt will be prevented from raising interest rates on the loans.

Students organised a day of action last week to protest at the sale, claiming the selloff opens the door to a retrospective rise in the cost of tuition fees.

A government-commissioned study, conducted by investment bank Rothschild, included an option to increase interest rates for 3.6 million borrowers who took out student loans over the past 15 years. This would obviously make the loans more attractive to prospective private buyers.

In June, Cable said: "I have ruled out categorically changing the terms of interest rates charged to graduates with existing student loans taken out before 2012. The Rothschild study which was completed in 2011 was a feasibility study which looked principally at how to sell the student loan book. Work on the feasibility of selling the outstanding student debt continues.

"However, the study also contained a proposal which suggested a change in interest rates charged to existing students - that proposal was comprehensively dismissed two years ago and will not be taken forward by this government."

The Rothschild study also looked at underwriting the loans with a "synthetic hedge", which would see the government compensating any buyer of the loan book against the risk of lower than expected returns. Although Cable rejected raising interest rates for existing graduates, he did not rule out the "synthetic hedge".

The business department confirmed an announcement will be made on the sale of the student loan book when the stock exchange opens on Monday.

Federal Programs Give Student Loan Relief to Service Members

Military service members have reinforcements to protect them in the field. Training, weaponry, surveillance and logistic support all work together to help soldiers, sailors, airmen and Marines carry out their missions successfully.

But those same troops can feel abandoned when it comes to their student loans, despite a number of protections in place to help them manage college debt.

"One of the biggest barriers is that servicemembers may be unaware that they are eligible for student loan relief," Holly Petraeus, assistant director of the Office of Servicemember Affairs at the Consumer Financial Protection Bureau, said via email. "If they do realize that there is relief available, they may be blocked from accessing it by uninformed customer service staff at their loan servicer."

Many veterans know about the GI Bill, which includes educational assistance for active-duty military, reservists and National Guardsmen who serve for at least 90 days. In some cases, the bill covers tuition, fees, books and housing, allowing veterans to graduate without student loan debt.

[Learn how to transfer military skills to a college major.]

The GI Bill does not cover existing college debt, though, so those who have student loans when they enlist still need to manage their payments.

Service members struggling with student loan debt can find relief through federal programs that cap interest rates and offer loan forgiveness.

Public Service Loan Forgiveness

Active-duty members serving full-time can have any remaining balance on their direct loans canceled after 10 years, if they make 120 on-time, full, scheduled monthly payments. Only payments made after Oct. 1, 2007, count toward the requirement.

Loan forgiveness doesn't come without paperwork, though. The Department of Education recommends graduates submit an annual employment certification form to help track their eligibility over the 10-year span. When all of the required payments are completed, they need to submit another form to have any remaining balance forgiven.

[View the 2014 Best Colleges for Veterans rankings.]

Older loans taken out under the Federal Family Education Loan Program don't qualify for forgiveness. Perkins loans are also excluded. Service members can get around this loophole by consolidating these loans into a new direct loan.

Some borrowers miss out on this benefit because they put their loans on a military deferral, which halts payments while they are on active duty.

Instead of stopping payments, troops should explore options to lower the amount due each month, such as income-based, income-contingent and pay-as-you-earn repayment plans. Each option bases monthly payments on annual earnings and family size. The reduced amount still counts as a full payment for public service loan forgiveness, even if the total amount due each month is zero dollars.

Service members who leave the military before the 10-year mark can retain this benefit, as long as they move to another qualifying position. Any employment with federal, state or local government agencies, or a nonprofit organization with 501(c)(3) tax-exempt status, falls under this relief program, according to the Department of Education.