Education Official: Profits from Student Loan Program "Are Used To Fund Government Generally"
Washington, DC - At a Senate Health, Education, Labor & Pensions (HELP) Committee hearing yesterday on strengthening the federal student loan program for borrowers, United States Senator Elizabeth Warren questioned witnesses about the profits the government makes off the student loan program and the Department of Education's lax oversight of Sallie Mae, a company that profits from multiple federal contracts related to student loans. Sallie Mae was asked to testify at the hearing and declined.
In the hearing, Senator Warren explained that, according to a recent estimate from the Government Accountability Office, the interest rate necessary to cover the cost of the student loan program without making a profit would be about 2.5%, but the government is charging students nearly twice that amount for undergraduate loans, and even more for graduate and direct loans. "When we set interest rates higher than we need to cover the costs, that generates revenue for the government," noted Senator Warren. "My question is, where do those profits go? Do they get refunded back to the students who paid more than was necessary for the cost of their loans, or are they just used to fund the government generally?"
Chief Operating Officer of Federal Student Aid for the Department of Education James Runcie responded, "They're used to fund government generally. They do not come back specifically into the program." Senator Warren criticized the idea of generating more revenue than is needed to run the program, and argued for additional legislation that would allow students who are trapped in high, fixed interest rate federal loans to refinance their outstanding student debt at more reasonable rates. To see their exchange about government profits off the student loan program, click here.
Senator Warren also asked about oversight of Sallie Mae. "Sallie Mae has repeatedly broken the rules and violated its contracts with the government..." said Senator Warren. "Sallie Mae is currently under investigation, let's make a list here, by the FDIC, the Department of Justice, the Consumer Financial Protection Bureau, and the Utah Department of Financial Institutions, and yet, Sallie Mae continues to make millions on its federal contracts with the Department of Education... Why did the Department of Education decide to renew Sallie Mae's contracts when it clearly violates the rules and has done so repeatedly?" To see COO Runcie's response and the rest of Senator Warren's questioning about Sallie Mae, click here.