Student Loan Debt Crisis (Explained): Facts, Causes & Effects

Report Highlights. The student loan debt crisis affects over 43 million Americans; rising debt and global hardship have prompted legislative action.

Americans owe a total of $1.75 trillion in federal and private student loan debt combined.
Federal student loan debt alone totals $1.62 trillion.
16.6% of all American adults have outstanding undergraduate student debt.
12.4% of student loan debt in repayment was delinquent as of March 2020*.
42.8 million federal borrowers and up to 3 million private borrowers owe student loan debt.

*In March 2020, a student loan debt freeze dropped the delinquency rate to essentially zero (0).

Line graph: Student Loan Debt Relative to Student Borrowers from 2007 to 2023 according to the U.S. Department of Education and Federal Reserve Board of Governors

Student Loan Debt Crisis

Student borrowers are in crisis due in part to a rise in average debt and a decline in average wage values. A significant portion of indebted college graduates and non-graduate borrowers do not have sufficient income to pay their debts. As unpaid debts continue to accrue interest, repayment becomes less likely.

For example, the average 1996 college graduate left school owing $12,750 ($25,571 in May 2024 dollars) in student loan debt. Just over 10 years later, 1996 graduates with loans remaining owed an average $16,500 (equivalent to $25,591 when adjusting 2006 currency values to May 2024 values) each.

Should a borrower fall behind on payments, the resulting impact on their credit score puts other forms of debt relief, such as refinancing, beyond reach. Losing access to additional lines of credit, such as an auto loan, mortgage, or loans to pursue a higher degree, the borrower often falls ever deeper into debt.

The student loan debt growth rate outpaces rising tuition costs by 353.8%.
$90.5 million or 12.4% of debt in repayment was delinquent in the first fiscal quarter of 2020, prior to the CARES Act.
Despite federal relief measures, collective student debt increased 8.28% in 2020.
11.8% of delinquent loan debt was in default.
9% of borrowers who attended public institutions were behind on their student loan payments.
By July 2020, 11.2% of adults with student loan debt reported they were unable to make at least one student loan payment that year-to-date.
15.1% of student borrowers under 40 years old are behind on their student loan payments.
20 years after entering school, half of student borrowers still owe $20,000 each on outstanding loan balances.

See our report on Student Loan Debt Statistics for more detailed research and analysis of student debt growth.

Line graph: Inflation-Adjusted Starting Salaries for Bachelor's Degree Holders from 1960 to 2022 according to the U.S. Bureau of Labor Statistics and the National Association of Colleges and Employers'

History & Underlying Causes

The term “student loan debt crisis” first appeared in a 1988 academic report from the Wisconsin Center for Education Research. This report indicated that the Guaranteed Student Loan Program of 1965, which provided low interest, subsidized loans to thousands of college students and created a student loan “bubble.”[1]

Economists compare the rise in student loan debt to “the housing bubble that precipitated the 2007-2009 recession” and the subsequent economic downturn. Just as subprime mortgage lending proliferated to create the housing crisis, similar patterns have created the student loan debt crisis.[2]

The most prescient financial experts predicted the housing crisis as early as 2000. By contrast, economists, journalists, and legislators have acknowledged a student loan debt crisis for over 30 years. This extended timeline gives ample time for analysis of underlying causes; specialists and scholars generally agree that excessive federal lending led to the main contributing factors in the student loan debt crisis.

When adjusted for inflation, federal education spending via student loans has nearly tripled since 1980, increasing 171.1%.
The federal student loan program cost an average $92.9 billion annually over the last 5 years.
That amount is equivalent to 5.93% of the federal student loan debt total.
Federal student aid in the form of grants and subsidies distributed to states correlates with a decline in support from within states.

Line Graph: Inflation-Adjusted Average College Tuition according to the National Center for Education Statistics and the U.S. Bureau of Labor Statistics

Increased Tuition & Fees

The Middle Income Student Assistance Act (MISAA) of 1978 made federal student loans more available. As more aspiring students gained access to funding, academic institutions began to charge higher tuition and fees.

Compared to tuition increases prior to MISAA, colleges now raise their tuition values more than twice as fast. Public 4-year institutions raise their tuition more than three times faster than they did before MISAA.

Today, the average postsecondary institution increases tuition at nearly three times the rate of currency inflation.

In the 21st Century, the cost of college attendance has increased at an annual rate of 6.8%.
That’s a growth rate 196.2% faster than currency inflation and 89.2% faster than wage inflation.
The cost to attend a public 4-year institution has grown the fastest; adjusting for inflation, tuition has increased 276.3% since the 1981-1982 academic year.
Prior to MISAA, public 4-year school tuition increased in value 23.9% over 12 years or at an annual rate of 1.99%.
After MISAA, tuition at public universities increased at an annual rate of 6.91%.
That’s a 247.2% increase in annual tuition growth rates.

See our report on the Average Cost of College for detailed analysis of tuition, fees, and other costs as well as cost variations.

Line graph: Appropriation of Taxes for Higher Education as a PErcentage of Gross Domestic Product according to the National Center for Science and Engineering Statistics

Decreased State Funding

Public institutions have increased the average tuition at the fastest rate since the passage of MISAA. MISAA also marked a decline in the value of state funding for public education.

What the federal government allocates to each state for education accounts for less than one-tenth of that state’s education spending. Due to MISAA, however, additional federal funding is funneled to postsecondary institutions via tuition increases.

Ultimately, the benefactors of federal education funds are state budgets. State funding continues to decline annually at a faster rate than spending increases, which means federal funding (and, to an extent, local funding) has supplemented the loss of education funding from state governments.

State tax appropriations for education have declined 28.1%* since 2001.
Meanwhile, state expenditures have increased 75%; when adjusted for inflation, the increase is 21.2%.
The federal government provides each state with an average $1.81 billion for student loan programs.
States spend an average of $2.07 billion each or a collective $103 billion annually on higher education.
95.4% of states’ contributions to student aid come from state and local tax appropriations.

*In this figure, tax appropriations are expressed as a percentage of the average state’s gross domestic product.

Line graph: State Spending on Higher Education as a Percentage of Tuition & Fees according to the National Center for Science and Engineering Statistics

For-Profit Education & Institutional Dishonesty

As federal money became available, services and industries grew around obtaining some of that money. These include for-profit institutions.

Then, in the 1990s, college “supersystems” emerged. These are publicly traded, corporate colleges with multiple locations – some nationwide – that serve thousands of students. Such supersystems included Corinthian College, Inc., which would be dissolved in 2015 following multiple state, federal, and international investigations for fraud. Corinthian subsequently filed Chapter 11 bankruptcy. Degrees from the college are now essentially worthless. Similar cases of fraud and bankruptcy among for-profit colleges has led to a decline in enrollment. The industry, however, remains active.

Institutional dishonesty is not limited to schools. The student loan servicing industry often garners criticism for perceived dishonesty and accusations of fraud. The federal government has investigated and sued some major servicers specifically over how these organizations administrate loans and services.

In 2023 alone, the Consumer Finance Protection Bureau (CFPB) received 14,647 official complaints regarding student loan products and services. Among these, 2,295 or 15.6% specifically claimed problems dealing with loan servicers.

In 1999, the for-profit college industry was worth a collective $4.8 billion in stock.
In 2010, 2.0 million or 9.6% of all postsecondary students were enrolled in for-profit institutions.
Enrollment at for-profit institutions increased 846.6% between 1990 and 2010.
Also in 2010, Corinthian had 110,000 students or 5.4% of all for-profit institution enrollees.
Since 2010, enrollment in for-profits has declined 51.4%.
As of 2018, 982,410 or 5.0% of all postsecondary students attend for-profit institutions.
Attendance declined 10.5% from Fall 2017 to Fall 2018.
1.8% of all CFPB official consumer complaints reference student loan services and lending.
Major lenders Sallie Mae, Nelnet, and Navient have all been ordered to pay millions of dollars to settle lawsuits alleging, among other things, fraud and unfair lending practices.

Bar graph: Consumer Complaints about For-Profit Colleges from 2012 to 2023 according to the Consumer Financial Protection Bureau

Declines in Degree Values

Degrees from for-profits aren’t the only ones that have lost value. Compared to the average student loan debt balance, the average wage has stagnated. Labeled “The Great Wage Slowdown”, the true value of the average wage has declined since 1991. Further, the value of an advanced degree has declined relative to the value of a bachelor’s degree in terms of wage values.

In order to pursue an advanced degree, the average graduate student takes out over $40,000 in loans. When the time comes to repay these loans, the more borrowers find their wages to be insufficient for paying off the debt.

The financial benefits of a bachelor’s degree decline at an annual rate of 0.86%.
Since 1991, currency values have declined 27.7% faster than wages have grown.
In the 21st Century, the median wage has increased at an annual rate of 3.40%.
The average undergraduate student loan debt value grows at an annual rate of 6.74%.
Graduate students borrow 37% of federal student loan dollars but owe up to 47% of student loan debt.
The average graduate student loan debt balance is 148.8% higher or more than twice the average undergraduate borrower’s student debt balance.
Employees with associate’s degrees or nongraduates with some college attendance have median wages 15.15% higher than high school graduates.
Subsequently earning a bachelor’s degree increases median wages by an average 42.11%.
Earning additional advanced degrees increases median wages by an average 28.63%.

Line Graph: Inflation Adjusted Student Loan Debt per Federal Borrower in thousands of December 2023 U.S. dollars according to the U.S. Department of Education and Federal Reserve Board of Governors

Effects of the Student Debt Crisis

Economic and social consequences of the student loan debt crisis affect individuals the most, impacting daily lives and hopes for the future.

Among low-end wage earners, education is worth significantly less. The median wage among workers with earnings among the lowest 10% is less than half the national median wage.

Such economic disparity has led those with advanced degrees, such as medical doctors and legal professionals, to avoid practicing in low-income areas. This creates further socioeconomic division as low-income communities have less access to essential services, such as healthcare.

The average student borrower spends 20 years paying off their loans.
The low-end wage for a bachelor’s degree holder is 39.23% less than the national median wage.
For advanced degree holders, low-end wages are 21.25% less than national median wages.
Low-end wages for employees with associate’s degrees or nongraduaes with some college attendance are 10.54% higher than those of high school graduates.
Among low-end wage earners, a bachelor’s degree increases median wages by 29.19%.
Also among low-end wage earners, a subsequent advanced degree increases median wages a further 29.59%.

Line graph: State Spending per Full-Time Postsecondary Student from 2003 to 2022 according to the National Center for Science and Engineering Statistics

Economic Consequences

Economic consequences of student loan debt may include stunted new business growth, belated homeownership, and reduced consumer spending.

While the U.S. appears to have made relatively little economic progress in years following explosive student debt growth, there is no definitive link between market performance and student loan debt.

Each time a consumer’s student debt-to-income ratio increases 1%, their consumption declines by as much as 3.7%.
Would-be entrepreneurs are 11% less likely to start a new business if they owe more than $30,000 in student loan debt.
Students with outstanding loan payments are 36% less likely to purchase a house.
13.32% of millennial renters indicate they will never be able to afford to buy a home.

See our report on the Economic Effects of Student Loan Debt for further analysis.

Line Graph: Student Loan Debt & Borrower Annual Growth from 2008 to 2023 including cumulative debt and federal borrowers according to the U.S. Department of Education and Federal Reserve Board of Governors

Sociological Consequences

Student loan debt appears to stress social programs and increase economic disparities between different social groups.

24% of Medicaid users hold a postsecondary degree.
The financial benefits of a bachelor’s degree decline 0.98% annually for men and 0.75% for women.
Black and African American college graduates owe an average of $25,000 more in student loan debt than White college graduates.
46% of Black student borrowers report they delayed buying a home as a direct result of student loan debt.
33% of Hispanic student borrowers say they put off getting married due to their student loan debt.
37% of Hispanic borrowers have delayed having children due to debt.

Consumer Complaints About Student Loans according to the Consumer Financial Protection Bureau