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Student Loan Proposal Would Avert Deadline, But Raise Borrowing Costs, Boosting Government Profit

June 21, 2013

WASHINGTON -- Student borrowers and their families would pay more to finance college under a proposal pushed by a bipartisan group of senators, increasing the federal government?s profits despite warnings over record student debt levels.

The proposal comes as the federal government has been recording mounting profit off the backs of students and their families, raising questions about the lawmakers? claims to help students afford higher education. The Department of Education has booked nearly $120 billion in profit over the last five fiscal years thanks to record spreads between what it costs the government to borrow and what the government charges students and their families.

The proposal by Sens. Angus King (I-Maine), Joe Manchin (D-W.Va.), Tom Coburn (R-Okla.) and Richard Burr (R-N.C.) would tie student loan interest rates to the government?s cost to borrow for 10 years -- the 10-year Treasury notes. Beginning sometime in 2016 or 2017, according to projections by the nonpartisan Congressional Budget Office, the proposal as currently drafted would raise the cost to borrow for most households, compared with loans under existing law.

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