Wondering What the Federal Government Does With Your Student Loan Payments?

Every single lawmaker, political commentator, and economic analyst has an opinion about the Affordable Care Act: how it will affect healthcare costs, insurance premiums, and the quality of healthcare, and whether it will increase taxes, blow up the deficit, or expand the powers of the federal government too much. The arguments for and against the reform of the United States healthcare system, which will bring coverage to many of the 49 million uninsured Americans, have even extended into the minutiae of Obamacare’s provisions.

But one problem with how Obamacare will be implemented — a problem that has not received very much attention from mainstream arguments — carries a strong indictment of the legislation. It is not the sentiment behind the Affordable Care Act that is at issue, but rather, how that sentiment has been put into law.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

The issue is that, according to the nonpartisan Congressional Budget Office, $8.7 billion of the money collected by the federal government in student loan interest will be used to pay for Obamacare. The CBO estimated that the interest rate on these loans could be reduced from 6.8 percent to just 5.3 percent if the funds were not used to subsidize the healthcare reform and other federal programs. From student loans, the Department of Education is expected to earn $50.6 billion in profit in 2013, according to the CBO, an increase of 43 percent from last year. This projection puts its profits above those of last year’s most profitable company, Exxon Mobil (NYSE:XOM). The federal government borrows the funds at just 2.8 percent.

This is a point on which political commentator Dick Morris, who worked as political adviser to the White House during Bill Clinton’s administration, hammered out a recent opinion piece for The Hill.

“Politically, how did the Republicans miss this issue in the last election?” he asked.

He believes that, “it is well to speak of fines that will be imposed on young people who don’t buy health insurance, but these penalties are in the future and still seem abstract to people in their teens and twenties.” Comparatively, he wrote, “student loan payments are a daily present reality, standing in the way of the rest of their lives.” Student loan debt stands apart from other forms of debt; they alone are not dischargeable in bankruptcy and will stain credit reports forever if they are not repaid. “For the administration to raid their wallets at this vulnerable time in their lives shows a level of arrogance and unconcern that is truly outrageous and stunning,” Morris added.

According to his calculation, the profits from student loans are divvied up in this manner: $8.7 billion goes to pay for Obamacare, $10.3 billion is used to pay down the federal debt, and $36 billion goes to fund Pell Scholarship grants.

However, for many recent graduates, their student loan burdens are too heavy. While it can be argued that students were well aware what debt they were assuming when signing on the dotted line, it is also true that the annual cost of a four-year degree has increased three times as fast as the rate of inflation since the 1970s. At the same time, job prospects for recent graduates have grown much dimmer; the unemployment rate of those from age 18 to 29 currently stands at 16.1 percent, compared to the 7.5 percent rate for the broader population. Not only that, but only 50 percent of college graduates are obtaining graduate-level jobs.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

As Morris noted, “the nexus between the student loan program and Obamacare” was purely opportunistic. When the Affordable Care Act was passed through Congress, he wrote, the administration decided to include a provision eliminating the private student loan industry, which fully federalized the program. This change was implemented in the hopes that the government could “raid the funds paid by students to provide money for the bottomless pit known as Obamacare,” he finished.

Follow Meghan on Twitter @MFoley_WSCS

Don’t Miss: Do Americans Desperately Need a Paid Vacation?

More from The Cheat Sheet