For decades now, the country’s outstanding student loan debt balance has only trended in one direction: Up.
Today, around 44 million Americans owe a combined $1.7 trillion for their education. But it didn’t have to be this way.
Legislation like the GI Bill, the National Defense Education Act, and Higher Education Act of 1965 paved the way for greater access to college and enrollment grew while costs remained low.
But, eventually, deep cuts in state funding for higher education paved the way for significant tuition increases and pushed more of the costs of college onto students.
These days, tuition accounts for about half of public college revenue, while state and local governments provide the other half. But a few decades ago, the split was much different, with tuition providing just about a quarter of revenue and state and local governments picking up the rest.
Over the 30 years between 1991-92 and 2021-22, average tuition prices more than doubled, increasing to $10,740 from $4,160 at public four-year colleges, and to $38,070 from $19,360 at private institutions, after adjusting for inflation, according to the College Board.
Wages haven’t kept up. “Household income has been stagnant,” said higher education expert Mark Kantrowitz.
Because so few families could shoulder the rising cost of college, they increasingly turned to federal and private aid to help foot the bills.
The shift to “high-tuition, high-aid” caused a “massive total volume of debt,” according to Emily Cook, an assistant professor of economics at Tulane University.
“The federal government should get out of the student loan business,” said Diana Furchtgott-Roth, an economics professor at George Washington University and former chief economist at the Department of Labor.
With nearly no limit on the amount students can borrow to help cover the rising cost of college, “there is an incentive to drive up tuition,” she said.
Now, “schools can charge as much as they want,” Furchtgott-Roth added.
Once families hit their federal student loan limits, they turn to parent student loans and private financing to be able to send their children off to college, an increasingly necessary step for people to have a decent shot at landing in the middle class.
More and more students feel they need to go to graduate school to be competitive in the job market. And more time in school means more costs, and a greater need for borrowing. Around 40% of outstanding federal student loan debt is now taken on post-college for master’s and PhD programs.
Average student debt balances among parents was over $35,000 in 2018-19, up from around $5,000 in the early 1990s.
Meanwhile, the private student loan market has grown more than 70% over the last decade, according to the Student Borrower Protection Center. Americans now owe more in private student loans than they do for past-due medical debt or payday loans.
Every year millions of new students are pumped into the student loan system while current borrowers struggle to exit it.
Many recent college graduates can’t afford the standard 10-year repayment timeline, according to Kantrowitz.
“Generally, people choose the repayment plan with the lowest monthly payment, which is also the plan with the longest term,” he said.
As a result, it takes people 17 years on average to pay off their education debt, data by the U.S. Department of Education shows.
Many borrowers put their loans on hold through forbearances, which cause their debt balances to mushroom with interest, and widespread failures in the government’s forgiveness programs have left those who expected to have their debt written off after a certain period still shouldering it.
The average loan balance at graduation has tripled since the 90s, to $30,000 from $10,000. Around 7% of student loan borrowers are now more than $100,000 in debt.
Without any intervention, over the next two decades, Kantrowitz estimates outstanding student loan debt could hit $3 trillion.
“Given how linear the growth in student debt is, it makes these events easy to predict,” he said.