Student Loan Debt Crisis Defined & How Stakeholders Can Proactively Help

The student loan debt crisis is at a tipping point. The total student loan debt default rate is higher than all consumer debt. The total amount owed on student loans exceeds credit card and automobile debt.

From an individual standpoint, people decide to earn higher education to secure better lives for themselves and their loved ones. But for many people, student loan debt can crush their near- and long-term hopes of basic financial security. The problems of debt can follow them for decades and have impact on their emotional state, job prospects, home ownership, and retirement goals.

Below is a brief explanation of how the crisis grew, thoughts on its resolution, more on the impact it has on students and graduates, and some tips on how to avoid the crisis in-part or entirely. The bottom of the page has links to our complimentary student loan test and guide, as well as to our legislative efforts and how you can help.

Total student loan debt in the U.S. increased by 169 percent from 2007 to 2024, from 642 billion to 1.73 trillion. During the same time period, the number of student loan borrowers increased from 28 million to over 43 million. A proportion of 54% of bachelor’s degree recipients graduate with student debt, according to College Board. And as of 2023, 4.4 million federal loan borrowers were in default.

So how did the student loan debt situation reach crisis levels? Several factors combined to bring us to this place. First, the unemployment crisis during the Great Recession of 2007-2010 led to policy shifts, notably the 2010 expansion of the Federal Direct Loan (FDL) program. This expansion shifted federal loan handling from private lenders to the government, allowing the government to issue all FDLs using funds from the Treasury Department. The policy made federal student loans far more accessible to a much wider group of students.

Increased access to student loans began a vicious cycle of tuition hikes and higher debt loads. Colleges saw the loan expansion as an opportunity to raise tuition, with the notion that federal loan subsidies would absorb the increases. Thus the cost to attend college has more than doubled since 2007, and The Education Data Initiative shows that it’s growing by 4.11% annually. The current average cost of attending a four-year college, including books, supplies, and living expenses, is $38,270 per year. These increases have far outpaced inflation rates.

At the same time, wages have stagnated – while the cost of tuition has gone up more than 100%, the wages for young workers (aged 22-27) have only increased 19% since 1980.

The resulting paradox is that policy designed to level the playing field by giving students from lower socio-economic backgrounds greater access to higher education has saddled those same people with staggering student debt they’re ill-equipped to repay.

There’s no magic bullet for solving this complex problem. Unless wages increase and college costs decrease, student debt will continue to plague our society for generations to come. Student loan forgiveness has grabbed headlines recently, but will fall short of solving the crisis unless we address future loan accumulation and reform the borrowing and repayment systems.

Some proposed solutions include cutting or lowering interest rates; streamlining income-driven repayment programs; making college tuition-free at the associate’s or bachelor’s degree level; and expanding the Pell Grant program.

Financial education also holds a key to helping solve this crisis. Obviously, students can avoid overwhelming student loan debt if they don’t take on loans in the first place. Exploring alternative funding pathways for higher education – scholarships, grants, or part-time work, for example – can yield positive results. Calculating the ROI of earning a degree in a specific field can inform prospective students whether they’ll be capable to repay their student loans within a reasonable time frame once they graduate. At the very least, college-bound teens and young adults should learn the ramifications of entering into student loans and have a solid repayment plan in place before they ever sign on.

Student loan debt has become a financial plague for many young people. After graduation, the average student owes approximately $37,000, and it’s taking them almost 20 years to pay off.

This issue has serious implications for their financial futures and well-being. Because of the obligation to start paying back these student loans shortly after graduation, many people are: