In a recent post at Boston Review, Malcolm Harris claims that the government is profiting from college loans which leave students saddled with debt.

Government Loansharking

Last November when I first wrote about student loans for Boston Review, the Department of Education estimated it would be pulling in around $25 billion in revenue from its higher education lending programs. It seemed ridiculous, since the DoE had started lending directly to students rather than guaranteeing private loans partly to give students a better deal. Seven months later, the Congressional Budget Office has estimated the student lending haul for 2013 at just under $51 billion, higher than the annual profits of Exxon Mobil or Apple. Rather than leveling off, government surpluses from student loans are following the exponential trajectory of higher education costs.

These revenues are profits—the government is profiting from student debtors. That some commentators have objected to this terminology illustrates widespread denial about the nature of the student-debt crisis. Even the political leaders who are rightly disgusted by such profiteering and favor lowering interest rates on student loans do not grasp the problem. These epic profits are merely the tip of a huge cost iceberg, formed from the skyrocketing baseline costs of education. No lawmaker has proposed a genuine, long-term solution to the crisis.

The huge profit flows from the divergence between the government’s borrowing rate and the interest rate at which borrowers repay their loans. While student borrowers do pay a low interest rate as compared to commercial loans, the Treasury’s 91-day Bill Rate has been stuck under one percent since the 2008 financial crisis; right now it’s at a historical low of .07 percent. If you can get money for nearly free, as the Treasury can, lending at even a small interest rate yields a significant profit when multiplied across hundred of billions of dollars in loans.