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  1. While this rightly reveals the problem with for-profit schools in the U.S., it doesn’t reveal, as most do not, how the government actually finances those student loans; which is only slightly less grotesque than the United Kingdom.

    When a student applies for a loan, it is NOT don’t through a bank. The application is made directly to the federal government, who approves anyone whose family makes less than $250,000 per year. The government then sends payment directly to the school.

    After payment is made to the school by the government, the government bundles a group of loans together, and then sells Treasury bonds on the open market to pay for those loans. With the low interest rates, the government currently pays !.64% on those bonds. Meanwhile, the government charges 6% interest to the students. The government makes 4.36% in pure profit. This was all set up under the Obama administration. The government has produced about $50 Billion in pure profits from student loans using this method since Obama took office. As Oliver pointed out, one way or another, the government always gets its money.

    In essence, in granting student loans, the government is essentially lending money to itself, to hand out to students, and then making a profit off of it.

    I say that it’s only slightly less grotesque than the U.K. because in the U.K., they use a similar method; except that they don’t bundle loans into sovereign debt bonds. Student loans in the U.K. are bundled into derivatives, and sold on the London exchange, similar to the way mortgage backed securities were.

    I wrote about this last year, when the Fed Funds rate was about 2.6%, and the government was still making a profit. Here I argue, that student loans should NOT be considered student “aid” at this point.


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