Colorado Springs News, Sports & Business

Government makes enormous profits on education

The Gazette editorial Published: May 21, 2013 0

When paying high summer prices at the pump, Americans often criticize the profits of "big oil." As high school students graduate and head toward college, parents should voice at least as much concern about the costs of tuition and student loans. They should direct a bit of outrage at the enormous profits government makes as a result.

Politicians constantly laud the value of college education. They promote plans to make college more affordable and accessible to all.

"If we want America to lead in the 21st century, nothing is more important than giving everyone the best education possible - from the day they start preschool to the day they start their career," said President Barack Obama, as quoted on the White House website.

If President Obama cannot succeed at "giving everyone" an education, he would like it to cost less. At least that's what he says.

Talk is cheap, but education remains out of reach for a lot of hard-working American families. Meanwhile, the Obama administration is generating enormous profits for government on the backs of college students. Don't take our word for it. Read the opening paragraph of a May 14 story in the Huffington Post, which isn't exactly a leading critic of Obama.

"The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers, a sum greater than the earnings of the nation's most profitable companies and roughly equal to the combined net income of the four largest U.S. banks by assets," wrote Shahien Nasiripour, the Huffington Post's chief financial and regulatory correspondent.

"The Education Department has generated nearly $120 billion in profit off student borrowers over the last five fiscal years..."

The $51 billion profit compares to Exxon Mobile Corporation's $44.9 billion in 2012, Apple's $41.7 billion, and Chevron's $26.2 billion.

The profits, at a cost of families and the country's future workforce, could be an A-list controversy for Obama if it weren't crowded out by scandals involving the IRS, Benghazi and the Department of Justice.

Even Democrats are outraged at the Department of Education's profit, which was released last week by the nonpartisan Congressional Budget Office.

"We don't see students or their parents as profit centers, and we don't think it's an appropriate concept to be acting like a market-driven bank here," said Rep. John Tierney, D-Mass.

Good point. Except that a market-driven bank is constrained by competition. The Department of Education is a monopoly.

Rep. George Miller, D-Calif., denounced "immense profit being extracted from students and families that are struggling."

The House Education Committee responded May 16, two days after Huffington Post published the numbers, by approving a Republican bill that would tie student-loan interest rates to the amount federal government pays to borrow money. As it stands, the interest rate on federally-backed student loans is scheduled to reach almost 7 percent - considerably more than the government's cost of borrowing.

When government reaps big profits by backing student loans, it creates incentive for politicians and government employees to advocate more of the profitable activity. The government's promotion of education loans creates incentive for colleges and universities to get their share of the risk-free capital by raising tuition. Soaring tuition means bigger loans and higher profits for the Department of Education.

Colorado State University's governing board this month approved a 9 percent increase for in-state tuition. Meanwhile, the cost of other goods and services - those subjected to more free-market constrictions - rose at a rate of only 1.1 percent (Bureau of Labor Statistics).

Our country needs to get the cost of higher education under control, just as it needs to rein in the soaring costs of health care. Just like health care costs, the price of education isn't constrained by traditional market forces. It is inflated by third-party intervention, including a Department of Education that generates enormous profits by cornering the market on student loans.

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