There is no federal student loan profit

As policymakers debated student loans earlier this summer, misinformation about the program's cost was widespread. Many people mistakenly thought that the federal student loan program earned a profit for taxpayers. The implication was that the program should be expanded and interest rates lowered even further. But the program actually costs taxpayers money, once market risk is fully accounted for.

As I wrote for NRO today, the myth of student loan profits continues to be spread, this time by Matt Taibbi in Rolling Stone:

Taibbi tells us that the real issue regarding student loans isn’t so much the interest rate charged as it is the ballooning principal that burdens students. (I agree.) He notes that universities keep tuition high in part by shifting so much of the cost to students and taxpayers through the federal loan program. (Right.) And he says that politicians looking to appear pro-student and pro-education are actually enabling this unfair system. (Exactly!)

But then he claims that the federal government itself profits off the student-loan program, collecting far more from students than it needs to. Taibbi says that politicians love the system because it rakes in the cash, and he describes the “massive earnings” as “a crude backdoor tax” on America’s poor and middle-class youth.

But there’s a basic problem with this theory. The profits don’t exist.

Read the rest of the entry here. And also see my Forbes op-ed on a similar topic.