How Big is the Student Debt Problem?

Student debt has been rising faster than any other source of household debt.

The amount of student debt in 2020 totaled nearly $1.6 trillion, more than double the $600 billion that was outstanding in 2008. While the amount of student debt has grown by over 250 percent, the Department of Education estimates that the number of students attending college has only risen by 2 percent among undergraduates and by 12 percent for graduate-level students over that period.

Student debt has actually been rising faster than any other source of household debt. It is the second-largest source of household debt, surpassing credit card and auto loan debt in 2010 and trailing only mortgage debt (i.e. debt used to purchase property).

Not only is the total amount of student debt rising, but so is the number of Americans with student debt, as well as the average amount of student debt owed. In 2019, 21 percent of households in the United States had student debt (and 41 percent of households led by someone age 25-38 owed student debt). On average, households with student debt outstanding owed an average of about $42,000. By comparison, in 1989, only 8 percent of households in the United States had student debt and owed an average of about $11,500 — even after adjusting for inflation. 

Why Has Student Debt Grown So Much?

For one, college has gotten more expensive. The average “sticker price” for undergraduate tuition and fees at a private, nonprofit college doubled over the last 30 years, according to the College Board. At public four-year colleges, the sticker price has come closer to tripling. And that’s after factoring in inflation. So in raw dollars, the sticker shock is even worse.

However, grants and scholarships have also risen as costs have increased, so the true price students are paying for tuition and fees hasn’t gone up quite as steeply as it may initially seem.

The costs undergraduate students face also vary dramatically depending on whether they attend a community college, a public university, or an exclusive private university. And whether and how much they need to borrow depends on many other factors. One student may get merit scholarships because they have high test scores, even though their family can afford the tuition. Another student may be a low-income adult trying to pay for college while also supporting a family.

Experts have put forward a variety of reasons for the rise of student loan debt. Here are some of the dynamics at play:

  • A Rise in Graduate School Debt: Only 15 percent of students enrolled in higher education are in graduate school, but 40 percent of federal student loans go to graduate students. The amount of debt that students take on for these expensive degrees has grown much more in recent years than debts for undergraduate degrees. Graduate school borrowers include those going into high-paying careers like law or medicine who are well-equipped to pay off their debts, but there are other students going into programs with a poor economic payoff, which may lead them struggling to repay their loans.
  • A Broader College Population: More people are going to college. And that includes more low-income and middle income people, as well as older, nontraditional students, who often need to borrow to afford to attend college. But even higher income families have been turning to student debt more in recent years, too. 
  • A Lack of Public Investment: States have a big role funding public higher education, but this was one of the prime targets for budget cuts in the wake of the Great Recession, and a sizable chunk of that spending never came back after the economy improved. When the COVID-19 pandemic hit, states had only recovered two-thirds of what they spent before the Great Recession. Meanwhile, the value of the federal Pell Grant, the main federal government program for low-income students, has lost a lot of ground against the rapid increase in college prices over the years.
  • Market Forces and Incentives: Given the prestige of a diploma from a name brand college, many private, nonprofit colleges and universities have little to fear from raising prices, beyond competition from similar institutions. In other words, there is enough demand from students and families at many colleges that they are able to fill their classes at ever higher prices. 
  • Widely Available Loans with Minimal Consequences: Federal student loans have also become more widely available over the past 20 years, and the terms on these loans, such as interest rates and loan forgiveness benefits, have become more generous. That can make it easier for colleges to raise prices, because students and parents have easy access to credit. Meanwhile, the penalties that the federal government imposes on colleges for saddling families with unaffordable debt are often ineffective, meaning colleges face few consequences for students who cannot repay their loans. 

A resource from the Peter G. Peterson Foundation, created with collaboration from the Center for American Progress (CAP) and the American Enterprise Institute (AEI).

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