Student Loan Rates On Track to Double in July

Student loan costs are set to rise July 1, from the general interest rate of 3.4 percent to 6.8 percent --- unless lawmakers vote to stop the hike, as they did last year.

In the middle of the presidential campaign, Congress voted to extend the lower rate.

On Tuesday, the day before the White House sent its budget to Congress, student advocacy groups decried the federal government profiting from student loans, while a growing number of students are struggling under mounting loan debts, reports the New York Times.

A report released in Feb. by the Congressional Budget Office confirmed the federal government makes 36 cents on every student-loan dollar it puts out.

Overall, student loans are expected to bring in $34 billion in revenue next year.

"Higher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt," said Ethan Senack of the United States Public Interest Research Group. "The revenue from student loans should be used to keep education affordable, and should never be used to pay down the deficit or for other federal programs."

Student loan borrowers amass an average debt of $27,000 by the time they graduate from school, federal statistics show.

According to the C.B.O. report, the government will get 12.5 cents in revenue next year for every dollar lent through subsidized Stafford loans, 33.3 cents per dollar in unsubsidized Staffords, 54.8 cents on each dollar of graduate school loans and 49 cents for every dollar of parent loans.

Borrowers of the subsidized Staffords make up more than a third of those using federal student aid and more than two-thirds of those borrowers come from families with an annual income of under $50,000.

The scheduled interest rate boost on subsidized Staffords would cost the loan program's 10 million borrowers an added $1,000 each, for every year of college, over the life of their loans.

While the fact the government makes money on student loans has long been known, the recently-released numbers are nonetheless very surprising, said Terry Hartle, senior vice president of the American Council on Education.

"If the numbers are accurate, the government will make more money on student loans than Ford makes on automobiles," he said. "Using student loans to create a profit center is not what anybody intended."

President Obama has said he wants to see a variable interest rate that's connected to the government's cost of borrowing and ends up being reset every year.

Many Republicans favor a variable interest rate as well.

The Senate recently passed a budget resolution extending the 3.4 percent rate indefinitely, while proposed legislation in the House would extend the 3.4 rate for two more years.