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Industry Study

2024 Student Loan Industry Study

Last updated 03/15/2024 by

Andrew Latham

Edited by

You can’t put a price on education, which is a good thing because the sticker shock would put us off it altogether.
This comprehensive student loan industry study investigates multiple data sources to reveal the key trends and statistics that define how we finance higher education.
Student loans are the fastest-growing source of debt for U.S. households. Since 2006, debt from student loans has grown three times faster than debt from auto loans and nearly six times more than that from mortgages. Student loans are now the largest source of unsecured debt in the United States and have become a financial industry in their own right. This industry comes complete with its own secondary market and student loan asset-backed securities.
The average student pays about $35,551 a year (around $142,204 for four years) to go to college. This includes supplies, textbooks, and living expenses, in addition to tuition. (Source.) Most households cannot afford to pay that with savings, which is why student loan balances are growing at an unprecedented rate. For academic year 2021–22, 41% of families needed loans to pay for children’s undergraduate education. This was down from 47% in 2020–21. Some 60% of families used scholarships to fund some portion of children’s education. (Source.)

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What is a student loan?

A student loan is money that private institutions or the federal government lend to students or their parents to finance post-secondary education. Most students finance at least part of their education with one or more student loans. As a result, 54% of 2020–21 bachelor’s degree graduates finished their education in debt (source). The majority of student loans — nine out of ten — are provided by the federal government.
All told, loans authorized by Title IV of the Higher Education Act…account for 93 percent of outstanding student loan balances.” — Consumer Financial Protection Bureau Supervisory Highlights, September 2022

What is the difference between a student loan and a personal loan?

Both student loans and personal loans are unsecured. This means they do not require borrowers to provide collateral, such as a house or a car, to guarantee the loan. Student loans usually have lower rates than personal loans. In December 2022, private student loans start with fixed rates as low as 4.25% APR (variable rates as low as 1.25%) and go as high as 16.75% APR. Personal loan offers, on the other hand, start at 4–6% APR for people with excellent credit and can go into the triple digits. (The Federal Reserve reports that, as of August 2022, the average 24-month personal loan at a commercial bank has a 10.16% APR. Source.) Another benefit of student loans is that the interest you pay is tax-deductible up to a maximum of $2,500. The catch is that student loans come with certain restrictions.
First, they can only be used to cover tuition, college fees, room and board, living expenses while at college, and books. Second, the funds from a student loan are usually disbursed directly to the college’s financial aid office. Not all educational institutions can accept student loans. For example, if you are trying to finance a coding boot camp, you may need a personal loan. Once tuition fees are paid, you can claim the remaining funds to pay for other expenses. Another important difference is how student loans are handled if you file for bankruptcy. Personal loans are discharged through a bankruptcy as a matter of course. Requests to discharge private and federal student loans are usually denied. Borrowers have to appeal the decision and prove why repaying the student loans would place an undue hardship on them.

What is the size of America’s student loan industry?

At $1.57 trillion, student loans are the largest source of debt in the United States after mortgages ($11.67 trillion).
If our student loan balance were a national budget, it would be the sixth largest in the world, after the U.S. ($9.38 trillion), China ($5.97 trillion), Germany ($2.02 trillion), Japan ($1.74 trillion), and France ($1.63 trillion).
The preceding charts are based, wholly or in part, on Federal Reserve data (source). As you’ll see in a moment, however, government data sources differ a bit. For instance, data released by the Department of Education would move student debt from sixth to fifth place in the national-budget rankings, ahead of France.

What is the total student loan debt in the United States?

As of Q3 2022, the Federal Reserve Bank of New York reports the total as $1.57 trillion, somewhat lower than the $1.59 trillion high in the prior two quarters. U.S. Department of Education data, as of December 2022, shows higher totals than the Federal Reserve data. (Source.)
Though the trends of these two sets of data are mostly in sync, the Federal Reserve data suggests that stimulus payments, combined with suspension of loan payments and interest accrual, have caused a leveling off and slight drop in total student loan debt. Department of Education data, in contrast, suggest student loan debt is still getting bigger, albeit less rapidly. If the latter is the more accurate data, or if we assume the pullback in the former data will be short-lived, Americans will likely owe $2 trillion or more in student loans by 2023.

Growth in total debt seems likely to resume or continue

It seems probable that the trend in the Federal Reserve data, if real, will not last. The cost of higher education is not dropping. Neither is demand. Sallie Mae reports that “Nearly 9 in 10 families agree that college is an investment in the student’s future (88%) and that earning a degree will create opportunities that the student would not have had otherwise (88%)” (source).
The trend could be extended somewhat if the Supreme Court deems President Biden’s loan forgiveness by executive order constitutional in February 2023 (source). As well, the Public Service Loan Forgiveness program, which began in 2007, may see more qualifying employees fulfill their 10 years of work and qualifying payments, even as changes in total debt due to the temporary expanded public service loan forgiveness program begin to show up more in debt figures.

Debt missed by the total student loan debt figures

The two sets of student loan debt estimates — $1.57 trillion in one case, $1.63 trillion in the other — share one thing in common. They do not include the money parents and students borrow from their credit cards, home equity lines of credit, or retirement funds. According to Sallie Mae’s annual survey of 953 parents and 952 students, about 6% of college costs are financed by other forms of debt. This includes home equity lines of credit (1% from parents), credit cards (2%: 1% from parents, 1% from students), and other loans (2%: 1% from parents, 1% from students). Loans against retirements accounts cover an additional 1% (from parents). Though withdrawals of retirement funds are not a form of debt, such withdrawals, which account for another 2% (from parents), do trade away some future security. (Source.)

House prices and student loans

Home equity is not a major source of funding for students. In the same Sallie Mae survey, only 7% of families report using a home equity loan or HELOC. However, many families use their home equity as a safety net to finance college expenses. And, of course, such families worry that a decrease in home prices could harm their ability to meet education costs.
History suggests that this concern is well founded. A 2016 report by the Federal Deposit Insurance Corporation estimated that the 30% drop in house prices of 2006 resulted in the average student having to borrow $1,300 more with student loans. Consistent with this hypothesis, Sallie Mae reported a 7% drop in the share of college costs paid by student families when you compare the periods 2003–2007 and 2007–2012. (Source.)

How much debt does the average college graduate have?

Parents’ savings and income, plus grants and scholarships, cover the largest portions of college expenses (43% and 26%, respectively). “Only” 18% of college costs are covered by student loans — 10% by student borrowing and 8% by parent borrowing. So Sallie Mae reports for the 2021–22 academic year. (Source.)
And yet, 54% of bachelor’s degree graduates from nonprofit four-year colleges and universities (public and private) finish their degrees in debt. On average, these new graduates owe $29,100. This is according to a College Board report released in October 2022. (Source.)
Of course, not all students get a bachelor’s degree. And not all students complete their degrees, certificates, or other training at nonprofit universities and colleges. Costs vary dramatically depending on the institution and the type of degree, certificate, or training program.

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The state of the student loan market in 2022

Possibly due to the changed priorities during and following the COVID-19 pandemic, the Consumer Financial Protection Bureau (CFPB) has not updated its reporting on consumer credit trends since April 2019 (source, checked mid-December 2022). This means that the latest comprehensive data we have for combined private and federal student loans are from April 2019. In that month there were 461,368 student loan originations ($6.6 billion), which represented a 2.8% year-over-year decrease.
Even if they were more recent, those summary figures alone would not give us a good feel for the overall student loan market. To get more granular, graphs in the next several sections show the growth of new student loans by month or academic year, based on age, credit type, income, and location. They include both federal and private lenders.
Much of what follows is based on the April 2019 CFPB data. While data of this vintage might not appear that useful at first glance, the years since, 2020–2022, have been unusual years. For much of that time, federal loan payments and interest have been suspended and normal educational activities considerably disrupted. This may make the CFPB’s pre-pandemic data more pertinent to the post-pandemic present than you might think. Nevertheless, we will supplement the CFPB data with more recent data from other sources whenever possible.

Student loan originations: how many were there in 2022?

It is difficult to perceive directional changes over time from a chart of year-over-year changes that fluctuate. Even so, the latest data published by the CFPB Consumer Credit Panel seem to show debt volume increasing, on balance, from 2013 to 2019.
The data also show that the number of new student loan originations declined during these years, and was slowing down significantly in April 2019. There were 461,368 loan originations that month.
More recent data from the College Board shows that, at least in terms of the total balance of new student loans, the downward trend has continued.
The question is: does this downward trend in loan amounts mean an equivalent trend downward in originations? Historically, originations and loan amounts have risen and fallen largely in tandem.
Based on this last chart, our educated guess would be that the 2021–2022 academic year will end up having the lowest number of originations since 2005. This could mean one million or fewer loans. Some of this loss will be due to the unusual circumstances of the COVID-19 years, no doubt. But much of it just confirms a trend already in place before the pandemic came along. Though demand for higher education seems unlikely to drop, it appears that use of funding methods other than loans is on the rise and has been since around 2010.

Accounting for Equifax

Unfortunately, new data from Equifax doesn’t seem to match the CFPB data. Equifax’s latest consumer credit trends report on originations (source) was released in December 2022 and analyzes data through October. It indicates that 7.90 million student loan were originated from January to October 2022. At first glance, this figure is so out of sync with the CFPB numbers as to be mystifying.
Equifax specifies “account” originations whereas CFPB specifies “loan” originations. So we believe the difference here is that Equifax breaks up into multiple accounts what CFPB reports as single loans. (Equifax refers to the account originations as “loan” originations in its summary observations, however. As Equifax looks at things, every account is a separate loan.) Graduated students who’ve reviewed their credit files after a few years of loan-funded education can probably confirm that multiple accounts for what seems like a single loan are the norm. The two sets of origination figures do, at least, share a similar pattern, one that shows originations dropping:
If there were a stable relationship between the Equifax count and the CFPB count, we could estimate not-yet-reported CFPB loan-origination figures from the Equifax account-origination numbers.
From this comparison, it appears that, in most years, there are something like 13 Equifax-recognized accounts for every CFPB-identified loan.

Deeming our projection confirmed

As quick-and-dirty estimates go, this one doesn’t look too bad. The 13-to-one rule seems to work well from 2013 to the end of CFPB’s data. This inclines us to believe the estimate going forward may not be too far off the mark. It predicts that CFPB-reported loans should be a little under 1.0 million by the end of 2021. This is in line with our expectations based on the CFPB data alone.
Equifax further reports that year-to-date origination volume as of October 2022 was $63.2 billion, down 1.0% from the prior year.

Which age groups take on the most student debt?

From 2016 to 2019, borrowers with ages between 30 and 45 first equaled then surpassed borrowers under 30 in taking on new student loan debt. Borrowers under 30 took on more debt than people between 45 and 64, but by only a small margin, and not throughout 2019. These figures were no doubt influenced by an increase in the number of people going back to school later in life and the high cost of graduate degrees. They also reflected how much student debt parents were borrowing on behalf of their children.
So, what has happened since CFPB’s April 2019 data drop?

Beyond 2019: student loan balances

For this, we must turn to the Federal Reserve Bank of New York. That institution’s Consumer Credit Panel, often in cooperation with Equifax, releases various useful reports and data through its Center for Microeconomic Analysis. While its 2022 Student Loan Update does not provide an age-group figure for originations, it does provide age-group figures for number of borrowers and loan balances. The latter are total student loan balances, which means they include newly originated and preexisting balances. These figures are statistical estimates based on a 1% representative sample of Equifax credit reports.
The above chart shows continued growth in total balances for all age groups except under-30s. Now, there is no reason to believe that under-30s have come into such wealth that they’ve been able to pay down their balances en masse. The pandemic stimulus checks weren’t that big. We therefore suspect this confirms that the trend evident in under-30 originations in 2018–2019 has continued. The rate of growth in balances for 30–39-year olds seems to have slowed. The same seems true, to a lesser degree, for 40–49-year olds.
Comparing the CFPB figures for loan originations and the New York Fed total student loan balances, alas, is not as instructive as our earlier comparison of CFPB and College Board data:
About all we can say based on this comparison is that any drop there might have been in post-2019 borrowing seems not to have had much effect on the growth of student loan balances on people’s credit reports.

Beyond 2019: student loan borrowers

If we look at the number of student loan borrowers rather than loan balances, we get a similar, but not identical, picture:
In terms of number of borrowers, student loans have leveled off or declined for most age groups. This trend especially stands out for borrowers under 30. The all-age-groups total, however, show a slight uptick in 2020–2021. In addition, close inspection of the totals by age group reveals a similar 2020–2021 uptick in the 30–39 and 40–49 age groups, but only a slowing in the decline among borrowers under 30.

What does it all mean?

Earlier in this study, we observed that the total balance of new student loans (federal and non-federal) has been declining since around 2021. We interpreted this to mean that students are funding more of their education using means other than loans.
The data we’ve just looked at adds to the picture. It seems to indicate that the borrowing that does happen is being shouldered more by older age groups. This could mean that the amount of assistance parents need to provide to college-bound kids is on the rise. It could also indicate that more working adults are deciding they need more education.

Which credit score profiles borrow the most?

Here is the picture of student loans through April 2019:
At the end of this period, super-prime and prime had the highest volume of student loan originations, with $3.94 billion and $2.56 billion, respectively. But deep subprime was third, with $1.83 billion in new loan originations. This last point shows that a high percentage of new student loans in 2019 (and prior years) went to borrowers with bad credit.
That seems counterintuitive. How could borrowers with such bad credit qualify for so much in new loans? A big part of it, no doubt, is that most student loans are subsidized by taxpayers and offered based on what students need, not on what they can afford to pay back. Also, most students, even those from middle-income families, have little to no credit — particularly in the first years of college.

Beyond 2019: borrower counts and balances

The Federal Reserve Bank of New York’s data show a precipitous drop in loans to deep subprime and subprime borrowers since 2019.
This has been accompanied by steeper growth in the number and balances of super-prime borrowers, as well as increased growth in the number of prime borrowers. There has also been some increase in the growth of prime-borrower balances.
This shift in the last few years toward borrowers with better credit fits with the trends seen in prior sections. As more student loans shift from under-30s pursuing their first degrees to their parents, or to older adults seeking graduate or belated undergraduate degrees, the average credit ratings of student loan borrowers naturally increase. Young undergraduates with little or no credit are doing less of the borrowing than they used to.

Which income brackets borrow the most?

Neither the New York Fed nor the College Board data include student loan figures based on income levels. The CFPB’s data, which in this case only reaches to July 2018, is as follows:
So, high and middle-income households borrowed twice as much as moderate-income households and over nine times what low-income families borrowed. Since grants and other forms of need-based assistance become more available as income drops, it isn’t entirely surprising that higher income has led to more borrowing. Then again, shouldn’t higher income mean having more savings and assets to put toward education without borrowing? Presumably the easy terms of subsidized loans make borrowing seem a better financial decision than spending savings or liquidating assets. And, of course, children from higher-income families do not have free and and full access to family savings and assets.
Recasting these data as percentages makes clear that the proportion of borrowing for each income level remains fairly stable over time, despite fluctuations.
It appears that, during most of this period, there was a modest increase in the percentage of borrowing by moderate-income households relative to middle- and high-income households. But, overall, the percentages have remained fairly stable. This gives us reason to expect that roughly the same percentages will be seen when CFPB data from 2019–2022 are finally released.

Which states have seen the largest growth in student loan originations?

Here is a visual representation of the answer as of April 2019:
Growth (and decline) in new originations varied dramatically by state. Alaska (195%), North Dakota (123%), and Nevada (88%) saw the largest growth in new originations. Connecticut (-65%), Hawaii (-68%), and South Dakota (-77%) experienced the largest declines in new originations.
Sadly, we have not been able to find a reliable alternative source of state-level origination data. As a result, we cannot report on changes in student loan originations at the state level since 2019.

What percentage of student loans are funded by the federal government?

The Department of Education is one of the biggest banks in the country. The student loans issued by all other banks combined don’t amount to 10% of what the Department of Education has on its books.
This is a new development. Up until July 2010, the government paid billions of dollars to banks and nonprofit agencies to lend money to students. The Student Aid and Fiscal Responsibility Act of 2009 changed all that (source).
The 2009 legislation included a switch to 100% direct lending. Overnight, the Department of Education became the largest student loan lender in the country. The Department of Education doesn’t directly service these loans. It still employs financial institutions to answer the phone, send balance statements, and collect debts. Nonetheless, it is the direct lender to more than 43 million borrowers (source). No, that number is not a typo. All told, 15% of consumers have student debt from undergraduate studies, and 7% have debt from graduate study (source).

How much does the government lend in federal loans?

Here is the picture of federal student lending based on the latest data:
An average of multiple estimates for 2021—2022 indicates that approximately 92% of student loans are federal and 8% private. If these percentages hold for the December 2022 Federal Student Loan Portfolio, that means that the $1,634.50 billion in federal loans account for 92% of all student loan debt, meaning the 8% of private loans should equate to $142.13 billion.

What are the federal student loan rates?

The following chart shows the annual percentage rates for different types of federal student loan since 2006.

How much do federal student loans cost the taxpayer?

Initially, the government projected a profit of $135 billion on student loans over 10 years, not counting $36.6 billion in administrative costs. The government’s projection was based on the FCRA method of accounting.
FCRA stands for the Federal Credit Reform Act of 1990. According to supporters, this legislation “established separate budgetary treatment for credit programs, shifting from standard cash accounting to a new method that more accurately represents the cost of these programs over time.” (Source.)
The FCRA accounting method, however, ignores the market risk the government takes. In a 2014 report projecting student loan program financial outcomes for 2015–2024, the Congressional Budget Office (CBO) contrasted the FCRA estimates with those provided by another method, fair-value accounting. Over the 10 years for which FCRA predicted profit, fair-value prophesied loss. The fair-value accounting method, which takes into account market risk (and opportunity cost), projected that federal student loans would cost the taxpayers $88 billion.
Another way of looking at it is that the FCRA projection showed a profit margin of 12%, whereas the fair-value forecast showed a subsidy rate of 8%. (Source.)

Developments since the early projections: 2018–2022

In 2018, the CBO began issuing yearly estimates projecting the cost of federal credit programs like student loans. These have been similar in many way to the 2014 report with its 10-year projection. These more recent reports, however, have only sought to forecast costs one year in advance. Each of the reports from 2018 to 2022 contrasts the estimates generated by the FCRA and the fair-value accounting methods.
Here is a summary of those projections:
So, in 2022, the Department of Education’s student loan programs are projected to save $1.4 billion on an FCRA basis but cost $7.7 billion on a fair-value basis. This represents an average subsidy of 9.1%. Put another way, this means that for every $100 the government disburses as student loans, taxpayers will have to cover $9.10 in costs.

How taxpayers cover costs

All government costs eventually have to be paid by taxpayers. This doesn’t mean that all those costs get paid through taxes, however. Americans end up paying government costs in at least two ways:
  1. Congress imposes actual taxes to pay costs.
  2. The Federal Reserve creates new currency, which the government borrows in order to pay costs. This increase in the supply of currency reduces the value of currency already in circulation. As a result, taxpayers find over time that the dollars government hasn’t taken from them in taxes are worth less. This can mean that the prices of goods and services rise more than they would have. It can also mean that prices that would have dropped stay elevated.
So, taxpayers either pay actual taxes or pay “the inflation tax” of lost purchasing power. One way or the other, they always pay.

An additional cost to taxpayers: incomplete loan repayment

One factor that can increase the overall cost of federal student loan programs to taxpayers is programs that allow borrowers to pay less than their full balances. Income-driven repayment plans are one example.
What this chart tells us is that about a third of the outstanding student loan debt is in income-driven plans that could end up costing taxpayers significantly more than initially expected. That third of outstanding balances is held by roughly a fifth of the people with student loan debt.
Decision makers and others may not be aware of the growth in the participation in these IDR plans and loan forgiveness programs and the resulting additional costs. They also may not be aware of the risk that, for future loan cohorts, the Federal government and taxpayers may lend more money overall than is repaid from borrowers.” — U.S. Department of Education, Office of Inspector General
Assuming the CBO took notice of this 2018 warning, each year’s CBO estimates should take the expected effects of IDR programs into account.

Are federal student loans good for America?

Depending on whom you ask, federally subsidized loans are either a way to level the playing field and give everyone a shot at the American dream or a failed social experiment that has subsidized an unprecedented rise in tuition costs.
The two most popular arguments in favor of federal loans are college enrollment rates and access to better job opportunities and wages. Sure, education may be expensive, so the argument goes, but it ultimately pays for itself.

College enrollment rates: promising data, but dated

First, the increased availability of student loans has correlated with increased college enrollments among lower-income students. When income-based enrollment data were last reported, there were more lower-income students enrolling in college than ever before.
Unfortunately, that last report was not very recent. Formerly, the National Center for Education Statistics (NCES) included in its yearly digests “Table 302.30. Percentage of recent high school completers enrolled in college, by income level: [year range].” As of 24 December 2022, however, its most recent digest (for 2021) omitted this table (source), as did its digests for 2020, 2019, and 2018. Only digests from 2017 and before include this table. Though newer digests continue to report statistics based on race or ethnicity and on gender, they omit the data that could show whether lower-income students are benefiting from these programs. Oddly enough, the Bureau of Labor Statistics (BLS) has lately reported enrollment statistics base on gender and race only, not on income (source).

When income-based data were last reported, lower- and middle-income enrollments were nearly equal

When the NCES last reported income-based enrollment figures, lower- and middle-income students were indeed attending college more than ever before. According to the NCES figures, 70% of high school graduates enrolled in college in 2016. Overall, 2.2 million of the 3.1 million high school graduates that year went to college. Four years later, in 2020, 63% of all high school graduates enrolled in college, but by that time the NCES was no longer reporting separate statistics for different income levels.
The gap in enrollment rates between low- and high-income students went from 30% in 2000 to only 16% in 2016. In 2015, the ratio of low-income students that attended college surpassed middle-income students. In 2016, the last year NCES reported income-specific statistics, low-income enrollments were dropping and middle-income enrollments rising, making them approximately equal (65% for middle income, 65.4% for low income).

College graduates make 80% more than workers without a degree

Second, there is no arguing that college graduates as a group have a lower unemployment rate and higher wages. In November 2022, unemployment rates were double for people with only a high school diploma (4%) compared to those who had a bachelor’s degree and higher (2%).
Higher wages are also strongly associated with having a college education. As a result, many consider higher wages the most obvious benefit of completing college. In the aggregate, college graduates make 80% more than workers who don’t have a degree.

Correlation does not mean causation

However, it is important to remember that correlation doesn’t imply causation. There is no doubt education is related to wealth, but it’s not clear how. To illustrate, people who go to college are more likely to have parents who went to college. But, clearly, going to college today does not cause your parents to attend college in the past. Instead, people who can afford to attend college are more likely to have better-educated parents with higher wages.

Other variables matter

As well, other variables can be found to correlate with differences in the association between education and wealth. For instance, analysts at the Federal Reserve Bank of St. Louis have found that the strength of the association between higher education and increased wealth varies depending on both race and parental education.

Before looking at the diagram data, a caveat: correlation and causation in The Demographics of Wealth

The Demographics of Wealth noted as the source for the preceding diagram is a series of essays written by staff of the St. Louis Fed’s Center for Household Financial Stability between 2013 and 2021. The essays analyze over 25 years of data.
Interestingly, a portion of the online introduction to the essays illustrates how easy it is to take correlation to mean causation (source):
The series confirms the conventional wisdom that more education is associated with more income and wealth. But the essays also show that inherited demographic characteristics — your race or ethnicity, your age and birth year, and even your parents’ level of education — profoundly shape the economic and financial opportunities you have and the outcomes you achieve.”
Now, this wording fails to respect the correlation-causation distinction. Can you spot where?
Rather than “profoundly shape,” the writer should have said something like “are consistently associated with observable differences in.” To “profoundly shape” is to cause to have a different form. But since correlation can never prove causation, the language of correlation or association should be used here instead of causal language about shaping. The differing outcomes associated with inherited demographic characteristic are of the same sort as the improved income and wealth associated with more education.

Complex phenomena defy simplistic explanations

With that caveat in mind, what can we infer from the data in the preceding diagram? They suggest that, although it is true that going to college will, on average, (be associated with an) increase your wages, the (apparent) benefits are inconsistent.
Persons identified as racially white who have college-educated parents and go to college themselves end up with net worths 8% higher than their high-school-only peers. (Put another way, if you had two randomly selected white individuals, one with a college education and one without, and both with college-educated parents, the one with a college education would likely have a net worth 8% higher than the one who only completed high school.) White people with parents who didn’t go to college, on the other hand, end up with a 17% higher net worth than peers. Nonwhite students with college-educated parents who themselves complete college show a 25% boost in net worth. (Source.)
So, the increase in net worth associated with completing college varies significantly with both race and parental education. Clearly, there is more than one factor at play here. Also, keep in mind that analyses like the preceding involve aggregate numbers and average figures. They are the correlations observed in large sets of data about many individuals. They do not necessarily predict anything reliably about any single person.

And don’t forget the human factor

As well, it takes ambition, drive, and some intelligence to graduate from college. You would expect a group of ambitious, driven, and talented people to do better than the average population regardless of what academic training they received. Those same people could have started small businesses, attended coding boot camps, or enrolled in apprenticeship programs and become financially successful.
And, in this what-if scenario, they would have achieved their success without investing more than $140,000 and the opportunity cost of four years of reduced or no income. That is quite the investment. To put it in context, if a 25-year old invested $80,000 in a retirement fund and never made another contribution, she would have $2,096,424.10 by the time she retired at 65. This is assuming a mediocre 7% rate of return compounded annually. (Source.)
Nevertheless, a sufficient increase in income over those same 40 years could make the big investment in education a prudent one. While higher education may benefit many who complete it, the increase in college enrollment has not resulted in higher wages for workers overall.
“Shouldn’t that read, ‘the increase in college enrollment has not been correlated with higher wages for workers’?” If that’s the first thing you thought after reading the preceding sentence, you’ve mastered the correlation-causation distinction. Even if we could show that the wages of workers in general had risen in tandem with college enrollments, we could not say that the former “resulted” (were caused by) that latter. Well done!

College enrollment, improved; wages, not so much

The percentage of employees with a college degree has increased dramatically. However, except for a brief spike around 2020 (stimulus checks?), that hasn’t translated into significantly better wages among workers. By 2018, student debt had increased from $200 billion to $1.6 trillion, and median student debt had increased from $10,000 to $20,000. And all this added debt had produced many more degree holder than in prior years.
Considering the spectacular rise in educational attainment, you might have expected a significant improvement in employee salaries. After all, increased access to college education would mean improved marketable skills, right? However, the median weekly earnings for workers 25 years and older only rose from $362 in 2001 to $368 in 2017, and to just $380 in 2022 (adjusted to 1982–1984 dollars). This is not a spectacular increase.

One might have foreseen this

In truth, had one thought about it in advance, one might have predicted that broadened access to undergraduate degrees would not result in improved salaries overall. As bachelor’s degrees become more common, they provide less of a competitive advantage in the marketplace. By making degrees easier to obtain through extensive student aid, well-meaning central planners have enabled people to acquire them with less effort and determination than before. This has made degree status less useful to employers comparing job applicants.
For several years, the greater ease of acquiring bachelor’s degrees has led employers to add official or de facto degree requirements to jobs formerly open to high school graduates. As a result, as Roosevelt Institute researchers noted when analyzing the statistics through 2018, “to the extent that individuals see an income boost based on college attainment, it is only relative to falling wages for high school graduates.” (Source.) So, extensive federal assistance programs have not made bachelor’s degrees more financially rewarding. Instead, they have increased the penalty the marketplace imposes on workers who fail to complete such degrees.
The good new is that forward-looking employers are beginning to deemphasize formal degrees in hiring. In the future, hard-working individuals with drive — but not inclined to borrow large sums of money for school — may find more opportunities open to them. (Source.)

Who carries the burden of student loan debt?

Parents pay 43% of their children’s college expenses. On average, students pay 21% of their college costs when you include income and savings (11%) and student borrowing (10%). Scholarships and grants pay for a quarter (26%) of college costs.

The cost of education, student debt, and delinquency

Of course, student debt is not in itself a bad thing. From the late 1980s through 2016, the cost of education increased by 50%. Over that same time, the lifetime earnings for those with a degree increased by 75% (source).

A quick reminder

Keep in mind that the preceding are average figures across the whole population of degree programs and graduates. Student debt will only be good debt if the education you buy with it improves your earnings enough to compensate. This will depend on both the nature and quality of the degree pursued and how well the degree suits you personally.
That caveat aside, investing in a good education is still a sound financial decision for many. In fact, there is an inverse relationship between the level of education of a borrower and the chances of defaulting on the loan. In other words, the more students borrow toward education, the less likely they are to default.
Nevertheless, repaying student debt is a struggle for many. Suspension of payments still in effect in December 2022 means that borrowers cannot fall behind on their payments for the time being. But the Federal Reserve reported that 20% of borrowers were behind on their payments in 2017. And the Department of Education reports that 6.4% of borrowers are currently (Q4 2022) in default.

Borrowers with lowest balances are most likely to default

Sadly, the most vulnerable student loan borrowers with the lowest debt balances are the most likely to default on their loans. According to a 2016 study by the White House, loans of less than $10,000 accounted for nearly two-thirds of all defaults (source). Similarly, in 2019, 63% of the borrowers who were more than 360 days delinquent on their loans had balances of $20,000 or less (source).

Student loan refinancing

The growth of student loan debt has created a market for a host of new student loan refinancing companies, such as SoFi, LendKey, and CommonBond. These companies help students save money on interest payments by refinancing their private and federal student loans.

What is the size of the student loan refinance market?

SuperMoney estimates the size of the student loan refinance market in 2022 at $499.2 billion — $407.5 billion in federal loans and $91.7 billion in private loans.
This figure is based on a 2015 study by Goldman Sachs analysts. The report estimated that 25% of federal direct and FFEL loans and 70% of private student loans could be eligible for refinancing based on their credit quality. Low credit quality borrowers are unlikely to qualify for a lower rate with a market-based lender. Apply the same ratios to the latest (Q4 2022) numbers from the Department of Education ($1.63 trillion) and the most recently released (Q3 2021) MeasureOne report on private student loans ($131 billion), and you arrive at $499.2 billion.

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History of student loans

Student loan balances may have grown exponentially for years prior to the pandemic, but they are nothing new. If you look back in history, financial aid of some kind, whether as loans, scholarships, grants, or philanthropic programs, has always been part of higher education.
College student loans date back to medieval universities, which recognized three main sources of financial support: student-paid fees, church donations, and state contributions. The University of Bologna — the oldest continually running university to grant degrees throughout its history — is a good example of how student aid started.

“In-state” tuition subsidies

History of student loans
A class in the University of Bologna, c. 1350.
Back in the 1100s, the University of Bologna was a magnet for students and intellectuals from all over Europe. Such was the popularity, Bologna professors felt the need to create rules aimed at reducing the number of foreign students.
Similarly, state-sponsored colleges charge higher fees to out-of-state students, which subsidizes the tuition of in-state students.

Alumni-sponsored programs

One of the rules the University of Bologna developed was that foreign students were responsible for any debts generated by their countrymen. For instance, French students were responsible for the previous debts of French students; English students had to take care of their countrymen’s tab, and so on. Eventually, students organized by country of origin and pooled their resources in loan chests managed by senior students. With time, the governments of foreign students got involved and started financing the education and living expenses of needy students. (Source.)
Similarly, SoFi and CommonBond — two of the leading student loan refinance lenders in the United States — started out as sources of affordable refinance loans for Stanford and Wharton students. Initially, the funding was provided by the pooling of resources from the alumni of their respective colleges.

Philanthropic programs

In the past, wealthy patrons gave private student loans and grants to students who would sometimes repay them with prayers and acts of charity on patrons’ behalf. Grants are still an important segment of education financing. In 2021–22, scholarships and grants funded 26% of college costs.
Donations from wealthy colonists played an important role in financing education for lower-income students in Colonial America. Harvard, for instance, was founded when John Harvard left half his fortune to New College (later known as Harvard).
Harvard’s first scholarship program was started by Lady Anne Radcliffe, who donated £100 and asked that the interest from her donation be used to aid poor students. This became a trend with philanthropists creating scholarship and financial aid programs for Yale, Princeton, William and Mary, and the University of Pennsylvania (source).
This pattern continues in our day. Some 55% of Harvard students receive a scholarship. Successful alumni will often support their alma maters with generous donations. Robert Woodruff, the former CEO of Coca-Cola, donated more than $230 million to Emory University. Sanford Weill, of Citigroup, donated $247 million to Cornell University.
Scholarships are a valuable resource for financing college expenses. About a third of college costs are covered by scholarships and grants. If you are going to college and you want to use your education to help people reach their financial goals, check out SuperMoney’s Financial Literacy scholarship program. It awards yearly funds to a student who wants to help Americans improve their financial wellness through continued education. The award size may vary over time, so follow the preceding link to learn more.

Zero-percent student loans

In 1838, Harvard started the Harvard Loan Program and became the first private student lending company. It offered zero-interest loans to students with aptitude who couldn’t afford tuition. This loan model spread to other prestigious colleges. Nevertheless, philanthropic donations still funded these programs.
Today, 0% interest student loans are still available. Typically, state education departments, foundations, associations, and charitable trusts offer them. For instance, you have the Massachusetts No Interest Loan Program (NIL), The Bill Raskob Foundation, The Scholarship Foundation of St. Louis, and the Jewish Free Loan Association (JFLA) — which is open to students of all faiths in the Los Angeles area — to mention a few.

The GI Bill

You can track the beginning of our current model of government-funded financial aid to the Servicemen’s Readjustment Act of 1944 (aka the GI Bill). From 1944 to 1955, college enrollment doubled from 1.15 million to 2.45 million (source). The education side of the GI Bill offered grants — not loans. However, it’s housing loan program did offer a model that could be used to offer financial aid on a larger scale.

The Higher Education Act

The Higher Education Act of 1965 was another watershed moment in the history of education financial aid. It made higher education an issue of national interest and provided funding for a guaranteed loans program. And colleges that received funding now had to report data and follow recognized accreditation standards.
Some of the programs we now have, such as the Stafford loans and grant programs, began when the Higher Education Act was reauthorized in 1972. Subsequent reauthorizations of the Act also introduced funding for grants that did not require repayments, such as the Basic Educational Opportunity Grants Program.

Loan forgiveness programs

As student loans have achieved “success” as financial aid, and as tuition costs have increased, many borrowers have overextended themselves. Now many have begun talking about how to help graduates get out from under overwhelming levels of student debt. The Student Loan Forgiveness Act of 2012, for instance, proposed a way out for borrowers who made 120 payments during the first 10 years of their loan. It also put a cap on federal student loan interest rates. However, this Act does not enjoy bipartisan support and is unlikely to pass in its current form (source).
There is also the one-off attempt by President Biden to forgive up to $20K in debt for qualifying student borrowers by executive order. As noted earlier in the study, the Supreme Court will have final say on whether this goes into effect in February 2023. Student loan forgiveness programs remain a popular topic of discussion. But because college graduates, on average, earn more than their non-graduate peers, forgiveness programs remain controversial. Taxpayers who did not attend college because of the high cost and college graduates who’ve already paid off their student loans are two groups typically opposed to new loan-forgiveness proposals.

The future of the student loan industry

If there’s one thing about the student loan industry everybody can agree on, it’s that it’s not sustainable in its current form. So, change is certainly on the horizon. What that change will look like is hard to say. Here are some areas where you can expect significant shifts.
Student loan forgiveness programs remain a popular but controversial issue that will define much of the political dialog for years to come.”


There are several law proposals working their way through Congress. It’s hard to say which ones will survive in the current political atmosphere, but here are some interesting ones introduced over the last several years. As of December 2022, all are still awaiting consideration by the appropriate committees. Should any of them eventually make it out of committee, lawmakers might rename them since their official titles often include the year they were first proposed.
  • Reauthorization of the Higher Education Act. This is the main law that regulates higher education, including student loans. Congress has to reauthorize it every five years for the programs to continue.
  • Student Loan Relief Act of 2017. A proposal to reduce interest rate caps for federal student loans. It also eliminates origination fees and offers to refinance loans for direct student loans and federal family education loans. (Source.)
  • REDI Act. If it passes, it would provide interest-free deferment on federal student loans for physicians with medical school debt during the time they are in a residency program. (Source.)
  • Private Student Loan Bankruptcy Fairness Act of 2019. This law would modify Title 11 of the United States Code so student loans are dischargeable in bankruptcy. (Source.)
  • Parent PLUS Loan Improvement Act of 2019. The idea is to reduce the interest rates of Parent Plus loans and make them eligible for income-based repayment plans. (Source.)
  • Employer-Sponsored Student Loan Repayment Plans. There are several law proposals for giving employers incentives for helping workers reduce their student debt.
  • Strengthening American Communities Act of 2019. Proposes a new partnership with the states that waives community college tuition and fees for eligible students.

Higher interest rates

For now, the Federal Reserve is continuing to raise interest rates to reign in inflation. This trickles down to all types of credit, including student loans. So expect higher interest rates for private student loans and refinancing loans if you have a variable interest rate. Congress sets federal student loan rates every July 1st. You can expect even these rates to rise if the trend continues.
The growth of privately funded student loan refinancing, potential changes in the federal student loan programs, and new types of student lending — such as income share agreements — could transform the industry.”

The end of student loan forgiveness

Currently, borrowers can apply for student debt forgiveness through multiple programs, such as the Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, Perkins Loan Cancellation, Disability Discharge, and Closed School Discharge. However, qualifying for these programs is often easier said than done.
According to the latest data from the U.S. Department of Education (October 2022), 97% of applications for PSLF under the traditional rules are denied. How much better the approval rate will be under the rules of the temporarily expanded program (TEPSLF) are not yet clear, since nearly 20% of forms are still pending evaluation.
Only borrowers who are enrolled in an income-driven federal student loan repayment plan can apply for PSLF. If you’re considering applying for PSLF, remember that only federal student loans are eligible for public service loan forgiveness. You must also make a majority of the 120 required payments while enrolled in a federal student loan repayment plan to qualify. As for TEPSLF, you can learn more about that here.

Privatization of student loans

Some feel that the federal government spends too much money on student loans and have suggested giving private lenders a bigger piece of the action. This proposal moves in exactly the opposite direction of the centralizing tendency that’s made the Department of Education the direct lender for most student loans. Since this proposal goes against the tide, it may not be a realistic possibility. Nevertheless, there are good reasons to consider it.
Since the Federal government seems to be losing money on student loans, privatization may not be a bad idea for taxpayers. It would also increase the choices available, which might encourage lower rates and better benefits. Of course, this would hurt people who don’t qualify for private student loans and require a need-based student loan program.

Income share agreements

An Income Share Agreement (ISA) is a financial arrangement where the lender offers a lump sum in exchange for a percentage of the borrower’s future income. ISAs are to individuals what equity investment is to businesses. If you believe a business is going to succeed, you don’t give it a loan. You buy shares. Instead of lending to students, ISAs ask for a share of their future earnings.
ISAs are still an exotic source of credit with only a few lenders in business. In 2014, they got some attention when bill proposals that gave them the same legal standing as student loans were introduced into Congress. One lender, Upstart, marketed them for a while. The bills were never enacted and interest in ISAs fizzled.
Now they are back and people are listening because universities are also getting involved. The ISA movement is growing and includes some big names in education. The idea originated in the 1950s with the economist Milton Friedman, but it never caught traction. Several years ago, a spike in student loan defaults caused lenders and colleges to get creative. In 2016, Purdue University started its ISA tuition option as an alternative for students and parents who would otherwise resort to high-interest private student loans. Other colleges, including the 80 member schools of the United States Collegiate Athletic Association, also offer similar programs. Private for-profit companies that also offer ISAs include Align, GS2, Lumni, and 13th Avenue Funding.

Final thoughts

Federal student loans have transformed from a program where the federal government guaranteed private loans to one where the federal government acts as the direct lender. This transformation has pushed private lenders to the fringes of the student loan market. Before pandemic-era suspension of loan payments and interest accrual, default rates were increasing. Both before and since this suspension, many have argued that radical action must be taken because student debt is crushing the financial hopes of millions. This call for action has produced many public-sector proposals for changing federal student programs, some of which may eventually be implemented. In the private sector, meanwhile, the growth in privately funded student loan refinancing and new types of student lending, such as income share agreements, could help transform the industry.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Andrew Latham

Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.

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