How do you figure that? At worst it's a barely profitable loan business that would be unattractive to the private sector were it not for government loan guarantees. If the students get an otherwise non-existent opportunity to better themselves and the government gets better educated citizens, seems like a win-win to me as long as recipients pay them back. In fact, my preference would be for profit to go back into the student loan program, albeit with the structural revisions.
Full disclosure - I have never had a student loan as my father owned part of an auto parts store and for eligibility the entire value of the store is counted as an asset, making me ineligible even though he owned but 1/4 of it at that time, so I'm not justifying my own use of it.
Again, from a deployment of risky capital *and* match funding the asset it is massively unprofitable.
To take a step backward, you have to look at the performance data and the current default information.
Only about 50-70% of students are actually paying their loans. Thus, any delinquency or default data you use has to be measured against the *paying* population. Current delinquencies run in the 11-15% area, overall severe delinquencies are ~11% of the population, or more than 22% of paying loans. Default rates, estimated by the DoE, run in the 16-17% area, but that number has been increasing by ~1-2% per year as the problem is gaining momentum. Remember that this problem has gained speed quickly over the past decade and students are in school at least 4 of those years, thus, our data is at least 4 years stale.
The only way this has been kept this low is non-dischargability. Default rates were roughly double what they were for a seasoned cohort prior to non-dischargability. They were 12-15% IIRC, pre-crisis they were ~6%. Thus, you could estimate that default rates currently, with dischargability would be 20-30%, not 16-17%. As I said before, this is gaining momentum.
The data we see sucks. I spent a lot of time look at FFELP loan pools since they are the ones private parties could "purchase" through securitization. The data is horrible. Usually 20%+ of the pools are in forbearance or deferment, if not 30-40%. The default data we have is understated due to them using the entire population, not the paying population, and the prepayment data is worse. This is for loans that are now ~4 years seasoned since they got rid of the FFELP program.
Now the biggest thing being blown around is "loan affordability". Why? Because they know the loans are unsustainable for a "normal" person. Thus they end up putting people on income based repayment where they pay ~10% of their disposable income and then get the loan forgiven in 20-25 years. The problem with this is that the 10% payment is almost always a negative amortizing loan.
Think of it this way. A person making 30k with 60k in loans will have a monthly loan payment of $673/mo. Under Pay as you earn the payment would be ~110/mo, which results in a underpayment of $573/mo and a neg-am of more than $220, but the government doesn't capitalize that interest. That is key, more than 2/3 of their "excess spread" (interest rate - funding cost - default rate - servicing fee) is gone. That is huge.
Furthermore, as loan pools pay down the payment statistics worsen, resulting in a pretty large extension as prepayments drop, defaults slow and forbearance/deferments increase.
As more borrowers are stuck on PYE/IBR and debt loans increase, the worse the situation becomes. It only builds on itself as debt loads increase significantly.
Whats worse is that for-profit loans actually default much higher, like 20-30%, and they cost the most while completion rates are the lowest and degree value is horrible.
I could go on and on and on about this. The economics of degrees is being destroyed, quickly, it is something I speak about professionally.
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