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Record Student Loan Payments Hurt Borrowers but Fill Government Coffers

Image: Record Student Loan Payments Hurt Borrowers but Fill Government Coffers

By Melanie Batley   |   Wednesday, 15 May 2013 11:17 AM

Student-loan repayments are boosting the Education Department's projected profits this year to a record $51 billion, driven by soaring student debt levels with hefty interest rates.

Citing Congressional Budget Office figures released Tuesday, The Huffington Post reported that the $1.1 trillion in outstanding student-loan debt had generated about $120 billion in profit payments to the department over the past five years, based on interest rates at 6.8 percent to 7.9 percent.

The CBO projects a $51 billion windfall for the Education Department this year, a figure that helps reduce the nations' debt but at the same time worries lawmakers who are concerned about the long-term impact on the economy.

Washington policymakers and economic experts say soaring student loans could dampen consumption, limit credit creation, and pose a threat to financial stability, according to The Huffington Post.

Overly indebted students, for example, may be unable to save enough to purchase a home, take out loans for new cars, start a business, or save enough for their retirement.

"The whole student-loan problem is a problem that should be of deep concern to this body," Richard Cordray, director of the Consumer Financial Protection Bureau, told the Senate Banking Committee last month.

“It's holding them back and it's making them unable to rise and succeed and become leaders in our society," he said. 

Leading Democratic senators proposed a bill Tuesday that would lock in the current low interest rate, 3.4 percent, on loans for the poorest households, while helping a small portion of borrowers who take out loans in the next two years.

But the legislation would do nothing to address existing student debtors, the Huffington Post reported.

"Today's figures from the CBO underscore the urgent need for Congress to prevent the July 1 interest-rate hike and address the crushing debt placed on students," said Tiffany Edwards, spokeswoman for Democrats on the House Education and Workforce Committee.

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