Does The Government Profit Off Of Student Loans?

The College Investor Audio Show

It should be a simple question - does the government profit off of student loans? But depending on who you ask, the federal government either earned a profit or lost money on federal student loans prior to the pandemic. The answer depends on political and accounting perspectives.

During the pandemic, however, the payment pause and interest waiver has caused the federal government to lose money on federal student loans, regardless of the method used to calculate the subsidy rates. By forgoing nearly $5 billion a month in interest, the federal student loan program swung from a profit to a loss even in the most optimistic of projections.

Let’s take a tour of how the federal government’s budget calculates the subsidy rates for various federal programs. But, before we do this, let’s review the concept of net present value accounting.