Student loan rates will feed federal profits

DETROIT -- A law touted by politicians as their way of keeping money in the pockets of the nation's college students will instead funnel more than $700 million in additional profit into the federal government's wallet over the next 10 years, a new analysis shows.

The law, regulating interest rates for federal student loans, was passed by Congress and signed by President Barack Obama this summer. It was hailed by politicians on both sides of the aisle as a win in the campaign to combat a rising tide of student loan indebtedness.

Though the law will accomplish that in the short term, it also guarantees profits for the government every year for the next decade and, starting in 2016, increases those already high profit levels, a mid-August report from the nonpartisan Congressional Budget Office shows.

"As soon as the interest rates begin to go back up, this deal ends up worse for students and their parents than if they did nothing," said Jessica Thompson, the senior policy analyst for the Institute for College Access and Success. "(The government) is absolutely making more money because of these changes."

In total, the CBO projects the government to clear $175 billion in profit over the next decade on student loans.

The CBO analysis comes as millions of students and their parents are signing loan documents heading into fall.

It also comes as Obama, once again, hits the road with a plan to lower college costs and decry the rising levels of debt students carry upon graduation.

A report issued in mid-August by the U.S. 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. The average debt for a college graduate in Michigan is slightly more than $26,000.

Nationally, there's more than $1 trillion owed in student debt — more than what Americans owe on credit cards — with more than $180 billion of it in some type of default, according to government data.

"If everyone else is making a killing off of us, I'm not the least bit surprised the government is angling to rake us all over the coals," said Nick Townsend, a senior at Ferris State University.