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Student Loans in the United States

Student loans are a financial aid option available to Americans designed to increase access to higher education. According to data, approximately 70% of recent graduates in 2018 utilized loans to fund all or part of their educational costs. Unlike other forms of financial aid such as grants and scholarships that typically do not require repayment, student loans must generally be repaid, with some key exceptions. While bankruptcy is one path to discharge student debt, it is not straightforward.

Student loan debt has increased substantially since 2006, reaching over $1. 3 trillion as of July 2021. On average, borrowers who obtained a bachelor’s degree in 2019 owed approximately $30,000 upon graduating. Graduate programs account for about half of all student debt, usually in significantly larger amounts. Loan amounts can vary widely depending on factors such as a student’s race, age, socioeconomic status, institution type, and desired degree level. For U. . households as of 2017, student loans comprised the largest non-mortgage liability. Research indicates rising borrowing limits as the primary driver of escalating tuition costs.
Students attending for-profit colleges default at a disproportionately high rate. In 2010, roughly 10% of college students were enrolled at for-profit institutions; however, such students accounted for nearly 40% of all federal loan defaults. The universities with the highest populations of indebted students include University of Phoenix, Walden University, Nova Southeastern University, Capella University, and Strayer University. Nova Southeastern is the sole non-profit among these. According to 2018 data from the National Center for Education Statistics, 52% of students at for-profit colleges defaulted within 12 years.
Individuals who depart school prior to completing their degree default at a rate three times greater than students who graduate. A 2023 Brookings Institution report found wealthy borrowers tended to “benefit most” from government suspension of student loan repayments given they hold the largest loan balances.

The National Defense Education Act established the initial federal student loan program in 1958. Only certain students pursuing fields like science, engineering, or education qualified. Enacted in response to the Soviet Union’s launch of Sputnik, the goal addressed widespread belief that U. . scientific and technological advancement lagged. The Higher Education Act of 1965 expanded student loan accessibility in the 1960s to promote greater equality of opportunity and social mobility.

The Bank of North Dakota originated the first federally insured student loan in 1967. Established in 1973, Sallie Mae operated the first significant government lending program in the U. . The Department of Education later directly funded and originated loans, while private investors generated and financed loans insured by the government. Direct-to-consumer private loans grew most rapidly. Policymakers examined the rising percentage of undergraduates obtaining such loans from 2003–04 to 2007–08, partly due to schools lacking certification.
The Higher Education Opportunity Act of 2008 substantially modified disability discharge regulations, effective July 1, 2010. By June 2010, Americans owed more in student loans than credit card debt, totaling over $830 billion in federal and private loans. Outstanding securitized student loans exceeded $1. trillion by end of 2015. The 2010 Student Aid and Fiscal Responsibility Act replaced guaranteed with direct federal loans, as the Obama administration argued guaranteed loans did not curb costs while benefiting private companies at taxpayer expense.

As of July 1, 2010, the Federal Family Education Loan Program ended due to the Health Care and Education Reconciliation Act, moving all federal loans to the Direct Loan Program. Since July 1, 2013, the Social Security Administration could discharge loans for borrowers found disabled under medical review every five to seven years. The 2017 Tax Cuts and Jobs Act made debt discharged due to death or disability non-taxable starting January 1, 2018, through December 31, 2025.
LendKey, SoFi, and CommonBond now offer refinancing using alumni contributions at lower rates than traditional lenders, aiming to reform the student loan market. Credible’s 2016 analysis estimated around 8 million borrowers could qualify for refinancing.

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