Student loans in the United States
In the United States, student loans are a form of financial aid intended to help students access higher education. In 2018, 70 percent of higher education graduates had used loans to cover some or all of their expenses. With notable exceptions, student loans must be repaid, in contrast to other forms of financial aid such as scholarships and bursaries which are not repaid, and grants, which rarely have to be repaid. Student loans may be discharged through bankruptcy, but this is difficult. Research shows that access to student loans increases credit-constrained students' degree completion and later-life earnings while having no impact on overall debt.
Student loan debt has proliferated since 2006, totaling $1.73 trillion by July 2021. In 2019, students who borrowed to complete a bachelor's degree had about $30,000 of debt upon graduation. Almost half of all loans are for graduate school, typically in much higher amounts. Loan amounts vary widely based on race, social class, age, institution type, and degree sought. As of 2017, student debt constituted the largest non-mortgage liability for US households. Research indicates that increasing borrowing limits drives tuition increases.
Student loan defaults are disproportionately common in the for-profit college sector. Around 2010, about 10 percent of college students attended for-profit colleges, but almost 40 percent of all defaults on federal student loans were to for-profit attendees. The schools whose students have the highest amount of debt are University of Phoenix, Walden University, Nova Southeastern University, Capella University, and Strayer University. Except for Nova Southeastern, they are all for-profit. In 2018, the National Center for Education Statistics reported that the 12-year student loan default rate for colleges was 52 percent.
The default rate for borrowers who do not complete their degree is three times the rate for those who did. A Brookings Institution study from 2023 revealed that when the government pauses repayment on student loans, it most often "...benefit affluent borrowers the most..." primarily due to affluent borrowers holding the largest student debt balances.
History
Federal student loans were first offered in 1958 under the National Defense Education Act. They were available only to select categories of students, such as those studying engineering, science, or education. The program was established in response to the Soviet Union's launch of the Sputnik satellite. It addressed the widespread perception that the United States had fallen behind in science and technology. Student loans became more broadly available in the 1960s under the Higher Education Act of 1965, with the goal of encouraging greater social mobility and equal opportunity.In 1967, the publicly owned Bank of North Dakota made the first federally-insured student loan.
The US first major government loan program was the Student Loan Marketing Association, formed in 1973.
Before 2010, federal loans included:
- loans originated and funded directly by the Department of Education
- government guaranteed loans originated and funded by private investors.
2010s
The rules for disability discharge underwent major changes as a result of the Higher Education Opportunity Act of 2008. The regulations took effect July 1, 2010. In June 2010, the amount of student loan debt held by Americans exceeded the amount of credit card debt held by Americans. At that time, student loan debt totalled at least $830 billion, of which approximately 80% was federal and 20% was private. By the fourth quarter of 2015, total outstanding student loans owned and securitized had surpassed $1.3 trillion.Guaranteed loans were eliminated in 2010 through the Student Aid and Fiscal Responsibility Act and replaced with direct loans. The Obama administration claimed that guaranteed loans benefited private companies at taxpayer expense but did not reduce student costs.
The Health Care and Education Reconciliation Act of 2010 ended private-sector lending under the Federal Family Education Loan Program starting July 1, 2010; all subsidized and unsubsidized Stafford loans, PLUS loans, and Consolidation loans are under the Federal Direct Loan Program.
As of July 1, 2013, borrowers determined to be disabled by the Social Security Administration would be accepted for loan discharge if the SSA placed the individual on a five- to seven-year review cycle. As of January 1, 2018, the Tax Cuts and Jobs Act of 2017 established that debt discharged due to the death or disability of the borrower was no longer treated as taxable income.
In an effort to improve the student loan market, LendKey, SoFi and CommonBond began offering student loans and refinancing at lower rates than traditional lenders, using an alumni-funded model. According to a 2016 analysis by online student loan marketplace Credible, about 8 million borrowers could qualify for refinancing.
The Federal Reserve Bank of New York's February 2017 Quarterly Report on Household Debt and Credit reported 11.2% of aggregate student loan debt was 90 or more days delinquent.
On July 25, 2018, Education Secretary Betsy DeVos issued an order declaring that the Borrower Defense Program, would be replaced with a stricter repayment policy, effective July 1, 2019. When a school closes for fraud before conferring degrees, students would have to prove that they were financially harmed. As of 2018, 10% of borrowers were in default after three years and 16 percent after five years.
In 2019, President Donald Trump ordered loan forgiveness for permanently disabled veterans, saving 25,000 veterans an average of $30,000 each. The same year, Theresa Sweet and other student loan debtors filed a claim against the US Department of Education, arguing that they had been defrauded by their colleges. The debtors filed under a rule known as Borrower Defense to Repayment.
2020s
Starting in March 2020, federal student loan borrowers received temporary relief from student loan payments during the COVID-19 pandemic. This relief was subsequently extended multiple times, and expired at the end of June 2023. According to repayment data released by the Education Department, in December 2021, just 1.2 percent of borrowers were continuing to pay down their loans during the over two years of optional deferment.In 2021, student loan servicers began dropping out of the federal student loan business, including FedLoan Servicing on July 8, Granite State Management and Resources on July 20, and Navient on September 28. According to Sallie Mae, as of 2021, 1 in 8 families are using private student loans when federal financing does not cover all college costs.
In July 2021, the U.S. Second Circuit Court of Appeals ruled that private student loans are dischargeable in bankruptcy, following two other cases.
In August 2021, the Biden administration announced it would use executive action to cancel $5.8 billion in student loans held by 323,000 people who are permanently disabled.
In November 2022, federal judge William Alsup ruled for immediate relief for about 200,000 student debtors and in April 2023 US Supreme Justice Elena Kagan declined to grant emergency relief to three for-profit colleges.
In the 30 years from 1991–1992 to 2021–2022, private college tuitions doubled, while public school tuitions increased by 2.5 times. In 1991–1992, state and local governments covered about three-quarters of the cost of public college, with tuition paying for the remaining quarter, but by 2021–2022, significant funding cuts to higher education resulted in governments only covering about half the current costs. In addition, since federal student loans do not limit the amount a lender can borrow, this has allowed public as well as private colleges to increase their tuitions.
In February 2023, the U.S. Supreme Court heard oral arguments in Biden v. Nebraska concerning President Biden's order to cancel student loan debt for an estimated 40 million debtors. In June 2023, the U.S. Supreme Court ruled in favor of Nebraska to block Biden's plan to forgive federal student loans.
In April 2025, Linda McMahon announced that the Department of Education would resume garnishment of the wages of student debtors whose loans are in default.
The second Trump administration restricted access to the Public Service Loan Forgiveness program while DHS announced it would offer "student loan forgiveness and repayment options" to Immigration and Customs Enforcement recruits.
Overview
s play a significant role in U.S. higher education. Nearly 20 million Americans attend college each year, of whom close to 12 million or 60% borrow annually to help cover costs. As of 2021, approximately 45 million Americans held student debt, with an average balance of approximately $30,000.In Europe, higher education receives more government funding, making student loans less common. In parts of Asia and Latin America government funding for post-secondary education is lower usually limited to flagship universities, like the National Autonomous University of Mexico and government programs under which students can borrow money are uncommon.
In the United States, college is funded by government grants, scholarships, loans. The primary grant program is Pell Grants.
Student loans come in several varieties, but are basically either federal loans or private student loans. Federal loans are either subsidized or unsubsidized. Federal student loans are subsidized for undergraduates only. Subsidized loans generally defer payments and interest until some period after the student has left school. Some states have their own loan programs, as do some colleges. In almost all cases, these student loans have better conditions than private loans.
Student loans may be used for college-related expenses, including tuition, room and board, books, computers, and transportation.