Students and their families incur substantial costs from attending college. In recent years, loans to students and their parents are being used to cover much of this cost, leaving substantial debts to be repaid on graduation. The magnitude of these costs has led to call for some of all of this debt to be forgiven by the federal government. What is the logic of debt forgiveness, and what are the specifics of forgiveness proposals?
What is the size of student loan debt?
The total estimated student debt today in the United States is estimated at $1.7 trillion as of 2022. The average individual borrower has approximately $30,000 in student loan debt, and approximately 48 million Americans have federal student loan debt. As the chart below shows, the bulk of the debt is owned by people between 25 and 49 years old.
Why is student loan debt so large?
Today, college student debt is the second highest source of debt, surpassed only by home mortgages. Why? First, more young people are choosing to go to college today than in the past. In 1980, 49.3% of high school graduates enrolled in college or university enrollment. By 2021, the percentage has increased to 61.8%.
The other factor is the cost of attending college. The figures below uses data collected by the College Board (and reprinted in a Brookings Institution publication) to show that while the sticker cost of both private and public universities have changed, the net cost (average cost paid by students after university scholarships, financial aid, and grants) has not changed substantially over the last two decades. (The figure’s data controls for inflation, with costs expressed in 2020 dollars – unadjusted costs have increased because of inflation.)
A second factor contributing to the cost of attending college is that federal grants have remained largely unchanged during the last decade and that financial aid is increasingly directed to low-income students. The result of all of these factors is a greater demand for student loans to finance college education.
Who makes student loans?
Student loans come from two sources: loans issued by the federal government, and loans issued by private loan companies. Currently, the vast majority of student loans (92%) are those issued by the government, in part because they offer a lower interest rate to borrowers and do not charge interest until graduation. Private lenders are typically banks, credit unions or other lending institutions.
What proposals exist for student loan forgiveness?
One way to address student debt is through debt relief, either universal relief or a plan that targets certain borrowers. Full debt forgiveness would cost the same amount as borrowers owe today – approximately $1.6 trillion.
Debt forgiveness has both pros and cons. Particularly during the COVID pandemic, loan forgiveness was seen as a method for stimulating the economy. A targeted plan could reward graduates for working in public service (for example, as teachers or nurses) or in distressed communities. The federal government sometimes forgives other debts, such as business loans made during a national emergency.
On the other hand, forgiving student loan debt would significantly increase the national debt. Forgiveness would also benefit individuals who have no trouble paying back their student loans. And finally, proposals for debt forgiveness raise a fairness issue, in that the government is compensating college graduates without providing equivalent compensation to people who did not attend college or who paid loans back without assistance. None of the proposals being discussed in Washington address any of these issues.
Early in 2021, one proposal would forgive “$10,000 of debt for individuals earning less than $125,000 income (and $250,000 income for a married couple) in the 2020 or 2021 tax years, and $20,000 for recipients of Pell grants” (federal grants to pay for college). This proposal would cost approximately $373 billion. While this plan would lower overall debt levels and relieve about 30% of borrowers from any future payments, it would not address ongoing debt accumulation. This proposal was later held to be unconstitutional by the Supreme Court.
In addition, the current administration has implemented existing policies to forgive $127 billion in loans for some groups of borrowers, as shown in the table below.
Further Reading
Looney, A. (2021). Putting student loan forgiveness in perspective: How costly is it and who benefits? Brookings Institution. http://tinyurl.com/3f4ff695, accessed 12/12/23.
Ma, J. and M. Pender (2022), Trends in College Pricing and Student Aid 2022, College Board, http://tinyurl.com/mua3j4s6, accessed 1/26/23 (chart data)
Shaw, T. & Hanson, K. (2020). Making the Case: Solving the Student Debt Crisis. The Aspen Institute. http://tinyurl.com/mmr9jysh, accessed 12/12/23.
Sources
What is the size of student loan debt?
Akers, B., & Chingos, M. M. (2014). Is a student loan crisis on the horizon? The Brookings Institution. http://tinyurl.com/yb6k8edp, accessed 12/12/23
Cilluffo, A. (2019). 5 Facts about Student Loans. Pew Research Center. http://tinyurl.com/sxeehzru, accessed 12/12/23
Ferguson, Jr., R. W. (2022). Three Questions about Student Debt Forgiveness. Council on Foreign Relations. http://tinyurl.com/49xj55e6, accessed 12/12/23.
Scott-Clayton, J. E. (2018). The looming student loan crisis is worse than we thought. Economic Studies at Brookings Institute, 2(34). http://tinyurl.com/v3mmdms3, accessed 12/12/23.
Why is student loan debt so large?
Bureau of Labor Statistics. (2022). 61.8 percent of recent high school graduates enrolled in college in October 2021. http://tinyurl.com/yc7x3ye8, accessed 12/12/23.National Center for Education Statistics. (2010). Table 23.1. Percentage of high school completers who were enrolled in 2- or 4-year colleges the October immediately following high school completion, by race/ethnicity: Selected years, 1980–2008. http://tinyurl.com/4p8ywb3r, accessed 12/12/23.
Levine, P. (2023). College Prices Aren’t Skyrocketing – But They’re Still Too High For Some. The Brookings Institution, April 23, 2023. https://tinyurl.com/yrb47mz6, accessed 12/18/23.
Ma, J. and M. Pender (2022), Trends in College Pricing and Student Aid 2022, College Board, http://tinyurl.com/mua3j4s6, accessed 1/26/23 (chart data)
Shaw, T. & Hanson, K. (2020). Making the Case: Solving the Student Debt Crisis. The Aspen Institute. http://tinyurl.com/mmr9jysh, accessed 12/12/23.
Who makes student loans?
Hanson, M. (2023). Student Loan Debt Statistics. EducationData.org. http://tinyurl.com/5dvwxpaf, accessed 12/12/23.
Luthi, B. (2023). Federal vs. Private Student Loans: What’s the Difference? Bankrate. http://tinyurl.com/2jw2nkny, accessed 12/12/23.
What proposals exist for student loan forgiveness?
Ferguson, Jr., R. W. (2022). Three Questions about Student Debt Forgiveness. Council on Foreign Relations. http://tinyurl.com/49xj55e6, accessed 12/12/23.
Goldrick-Rab, S., & Steinbaum, M. (2020). What Is the Problem With Student Debt? Journal of Policy Analysis and Management, 39(2), 534-540. http://tinyurl.com/3k4zcf99, accessed 12/12/23.
Luthi, B. (2023). Federal vs. Private Student Loans: What’s the Difference?. Bankrate. http://tinyurl.com/2jw2nkny, accessed 12/12/23.
Shaw, T. & Hanson, K. (2020). Making the Case: Solving the Student Debt Crisis. The Aspen Institute. http://tinyurl.com/mrxawb7x, accessed 12/12/23.
U.S. Department of Education. (2023). Biden-Harris Administration to Provide 804,000 Borrowers with $39 Billion in Automatic Loan Forgiveness as a Result of Fixes to Income Driven Repayment Plans. http://tinyurl.com/bdzku39f, accessed 12/12/23.
Looney, A. (2021). Putting student loan forgiveness in perspective: How costly is it and who benefits? Brookings Institution. http://tinyurl.com/3f4ff695, accessed 12/12/23.
Pew Charitable Trusts. (2019). Two Decades of Change in Federal and State Higher Education Funding. http://tinyurl.com/5n6vednm, accessed 12/12/23.
Cowley, S. (2023). How Billions of Borrowers Got $127 Billion In Student Loans Canceled. The New York Times, November 11, 2023, https://tinyurl.com/ykh9kax5, accessed 12/18/23 (chart data).
This Policy Brief was researched in June 2023 by interns Eli Oaks and Julia Acevedo, drafted by Mary Adams, and edited by Dr. Nate Birkhead and Dr. William Bianco with the assistance of subject matter expert Matt Honohan.