We have all seen the memes comparing what our parents’ generation was able to do with their money in their mid-20s versus what we can do with our money in our mid-20s. Maybe if we were to just be more fiscally responsible and cut out our weekly avocado toast expenditures… 

Of course, what the older generations often fails to grasp is how much different the higher education landscape is compared to what it was when they got their degrees. 

Tuition and fees at public four-year universities increased by 42 percent between 2007 and 2021, leaving the student loan debt per borrower to, naturally, increase from $22,680 to $36,510 in that same timeframe. 

The numbers become even more staggering when going back a few decades. In 1989, only 15 percent of households led by 25- to 34-year-olds carried some level of student debt. By 2013, 42 percent of the same demographic carried student loan debt (and, presumably, that number has only increased in the last nine years ). 

In simplistic terms, people in this country now hold more education-related debt and have higher education loan debt balances than at any point in history.

What Is the Current State of the Student Loan Crisis?

While the 24/7 news cycle gives us plenty of policies to worry about daily, it can often feel like the pressing issue of the student loan crisis is not getting the attention it deserves. 

Over the last decade, student loan debt increased an average of $91 billion every year, leaving education debt at $1.75 trillion this year, including both federal and private education loans. The amount of federal student loans (not including the private loans) is equivalent to 7.3% of the U.S. annual gross domestic product (GDP). It is an astounding figure to ignore. 

Many borrowers struggle to repay their loans: Prior to the suspension of interest and loan payments in response to the COVID-19 pandemic, nearly one in every five borrowers was in default. The delinquency rates are expected to continue increasing. Pre-pandemic, around 11 percent of the federal student loan portfolio was in default, and 6 percent of those loans were more than 30 days delinquent. If the upward trend continues, nearly 40 percent of federal student loan borrowers who began college in 2003 will default on their loans by 2023. 

Who is Affected by Student Debt?

With the amount of student debt per borrower increasing every year, Gen Z students face the highest amount of student debt of any generation. 

However, it’s not just the students themselves dealing with this burden. The skyrocketing education costs are so high that students’ parents, grandparents, and eventual spouses take on student loan costs. 

While the general focus of the student loan crisis has been on the under-30 crowd, that is not the entire picture of the situation. The last time education debt holders under 30 were the majority of borrowers (meaning 50% or more) was 2004. As of 2017, the under-30 demographic makes up 38 percent of all student loan borrowers. 

Still, the majority of student loan borrowers are still between 18 and 39, but the fastest-growing segment of education loans is adults aged 60 plus. The number of 60 plus with education loan debt has quadrupled over the past decade. 

Families who have taken on repaying student loans of the younger members have reported skipping necessary health care needs that become unaffordable due to student debt.

Suppose older borrowers are unable to repay the loans. In that case, they risk losing some of their Social Security benefits since the federal government can reduce a person’s wages and tax refunds for failure to repay federal loans. 

What Caused the Student Loan Crisis?

Obtaining a higher education now seems like a critical step to unlocking the door to opportunities and economic security. However, with the demand for college degrees increasing exponentially, the cost of financing these degrees has strained entire families. As limits to federal lending have risen to allow for these higher education costs, it has become a costly cycle where colleges and universities can, in turn, charge higher and higher tuition without seeing declines in enrollment. 

Between the cycle outlined above, the increased demand for college degrees in high-paying jobs, and a reduction in state funding to public four-year institutions, the problem keeps getting worse. 

State governments have historically been the primary funders of higher education. However, over the past few decades, support has gradually declined. In 2000, states provided $8,817 in average funding per full-time equivalent (FTE) student (adjusted for inflation), compared to $7,805 in 2020. 

When compared to personal income, state support has decreased by more than one-third since 1980 for FTE students.

How Does the Student Loan Crisis Affect the US economy?

The student loan crisis does not just affect the borrower. It has wide-spread effects across the whole economy.

Small business growth declines because small businesses are especially vulnerable to the economic impact of student loan debt as they are most likely to rely on personal financing. According to Educationdata.org, “Would-be entrepreneurs are 11% less likely to start a new business if they owe more than $30,000 in student loan debt.”

The housing market becomes hampered. Borrowers with outstanding payments are 36 percent less likely to purchase a home. Part of this could be because borrowers have lower credit scores on average and are more likely to live at home with their parents. Their optimism regarding owning homes has dropped off, too. Over one in ten millennial renters do not believe they will ever be able to afford to buy a home. 

Social programs are becoming more stressed. With the amount of student loan debt increasing so sharply, many borrowers have to turn to social programs to make ends meet. One out of every five recipients of food stamps (SNAP) has a degree. Nearly 25 percent of Medicaid participants have a degree. 

With all of these sweeping effects, some economists compare the rise in student loans to “the housing bubble that precipitated the 2007-2009 recession.” If that is the case, will a similar economic recession happen? 

Loan Forgiveness Announcements 2022

President Joe Biden has announced that he intends to cancel $11.24 billion in federal student loan debt.

While that figure may sound high, it accounts for less than 1 percent of the existing student loan debt in the United States.

The cost to forgive all federal student loans would cost an estimated $1.6 trillion. According to the Brookings Institution, $10,000 in relief to all existing borrowers would cost an estimated $373 billion.

Of course, these plans may sound enticing to borrowers, but the tradeoffs of the high expense of these efforts may not boost the broader economy as intended. 

When put in the context of other potential social programs, the ROI for student loan forgiveness might be lower because Americans with student loan debt generally earn more money and would not benefit as much from this type of relief. 

It becomes a hard tradeoff equation when deciding the cost versus benefit of these plans. A recent poll from Morning Consult and Politico shows that 64 percent of registered voters would support some degree of loan forgiveness. Still, there is disagreement regarding who should see the forgiveness and how much should be forgiven. 

With the divisiveness of politics, without sweeping consensus from the public, the issue may remain murky. 

Left vs. Right Views and Proposals on the Student Loan Crisis

We heard both parties discuss the crisis in the 2020 presidential debates and can expect that the discussion will only increase in urgency and frequency in the coming election cycles at all levels of elections and government. 

The debate has centered around two topics: how to provide relief and how to rein in future student borrowing. 

Staring at these loan stats above, neither party nor its candidates will be able to ignore this policy issue. 

Democrat thought leaders have publicly proposed some of the more aggressive student loan debt forgiveness options. U.S. Rep Alexandria Ocasio-Cortez recommended the total cancellation of all student loan debt. 

While Republican candidates have spoken on the issue in more general terms, prominent candidates and elected officials have discussed the benefits of refinancing student loans (which would reduce monthly payments by lowering interest rates) and promote job creation in the long- term solution to alleviating the debt burden. Additionally, GOP candidates suggest the long-term promotion of lower-cost alternatives to traditional degrees, such as trade programs, that have positive job prospects for graduates. 

Future Implications to the National Debt and More Critical Issues

If the trends continue with rising balances and high default rates, the federal budget and national debt could see even more significant strains from the student loan crisis. 

If the national debt continues to see steep increases, the cost of borrowing for everyone, including those without student loans, will increase. Mortgages, business loans, and more will be affected, making it harder for Americans to buy a house or find good-paying jobs. Additionally, according to figures from the nonpartisan Congressional Budget Office, the current trajectory of the federal debt will reduce a four-person family’s income by an average of $2,000 in 2027, with that figure rising to $8,000 in 2037 and $16,000 in 2047. That’s money that won’t be spent in the economy or invested for vital priorities like education and retirement.

Between uncertainty and ambiguities regarding budget forecasting models, we cannot yet pinpoint what the long-term costs of this crisis will be. However, we know that the costs are arriving faster and harder than anticipated, especially if you or your family are directly affected by education loans. 

Without knowing the exact costs of the situation, policymakers have a more challenging road to crafting detailed and effective policies to address student debt growth and make the arguments to their colleagues and the general public. 

What Can You Do?

The impact of the student loan crisis will have an expansive effect on our economy. 

There are many ways that you can get involved in impacting policy decisions. 

• Get educated about the subject. Young people across America are getting educated about fiscal policy and making changes at their colleges and universities with Up to Us.
• Voice your opinion. Policymakers make decisions based on their constituents and election pressures.

You can kick off your advocacy by getting involved with Up to Us. Enter our campus competition, sign the pledge, to let local representatives know that you are concerned about the nation’s fiscal future. You can also host or attend local-related events.