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The Toll of Student Debt in the U.S.

By Ella Koeze and Karl Russell Aug. 26, 2022

The amount of student debt held in America is roughly equal to the size of the economy of Brazil or Australia. More than 45 million people collectively owe $1.6 trillion, according to U.S. government data.

That figure has skyrocketed over the last half-century as the cost of higher education has continued to rise. The growth in cost has substantially been more than the increase in most other household expenses.

The average cost of college has risen faster than inflation

$22,700 for ’20-’21

academic year

Average cost of public

higher education

adjusted for inflation

Not adjusted

for inflation

’80-’81

’90-’91

’00-’01

’10-’11

’20-’21

for ’20-’21

1980-’81

2000-’01

1975-’76

’85-’86

’95-’96

’05-’06

’15-’16

The rising cost of college has come at a time when students receive less government support, placing a greater burden on students and families to take out loans in order to fund their education.

Funding from states in particular has steadily declined, accounting for roughly 60 percent of spending on higher education just before the pandemic, according to an analysis by the Urban Institute, down from around 70 percent in the 1970s.

States’ and local government’s share of spending on higher education has been declining

Share of higher education expenditures.

Tuition-related charges

Other charges

State appropriations

and other sources

To address the growing crisis, President Biden announced a plan on Wednesday to wipe out significant amounts of student debt for millions of people. It was a step toward making good on a campaign promise to alleviate, as Mr. Biden has said, an unsustainable problem that has saddled generations of Americans.

“The burden is so heavy that even if you graduate,” he said, “you may not have access to the middle-class life that the college degree once provided.”

The typical undergraduate student with loans now finishes school with nearly $25,000 in debt, an Education Department analysis shows.

According to the plan , borrowers will be eligible for $10,000 in debt relief as long as they earn less than $125,000 a year or are in households earning less than $250,000. (Income will be assessed based on what borrowers reported in 2021 or 2020.)

Student debt, however, has a widely disparate impact on different populations.

Black people are increasingly carrying a larger student debt load …

Share of families by race that have an education loan.

Hispanic 14%

… as are millennials, who owe far more than older and younger generations

Total balances of student loans by age.

$500 billion

60 and older

As student debt has grown in recent years, people’s ability to repay it has declined.

When the pandemic brought the global economy to a standstill in 2020, President Trump issued a moratorium on student debt payments and forced interest rates down to zero. Mr. Biden adopted similar policies. The moves helped millions of people lower their loan balances and prevented borrowers unable to pay their loans from defaulting on them.

Nonetheless, there has been a sharp increase in the number of people whose loan balances have stayed the same or have grown since the start of the pandemic.

The pandemic moratorium lowered defaults, but balances still loom

Number of borrowers by loan status at the end of each year.

+7.5 million borrowers

from 2019 to 2021

25 million borrowers

Balance is the same

or higher than one year prior

Balance is lower

–4.7 million

–1.5 million

90 days or more

–1.8 million

Balance is the same or

higher than one year prior

On Wednesday, Mr. Biden announced that the pandemic-era pause on payments would expire at the end of the year. He also reiterated his commitment to providing relief, in particular to lower- and middle-income households . How exactly to do that has been a topic of debate inside the White House and out.

One provision of the program involves an income cap: Debt relief may apply only to individuals or families who earn below a certain amount. The point of that provision, according to the White House, is to make sure no one who earns a high income will benefit from the relief.

An independent analysis from the Wharton School of Business showed that households earning between $51,000 and $82,000 a year would see the most relief — regardless of whether an income cap were applied. This is in part because more people at middle income levels hold student loans.

With or without an income cap, most relief would go to middle-income households

Current plan

If no income cap

$10,000 per person, income

cap of $125,000 individual

or $250,000 household

$10,000 per person,

no income caps

Share of debt relief

In the current plan ,

14% of the debt relief

will go to the lowest

fifth of earners.

Bottom fifth

≤$28,784

≤$50,795

Middle fifth

≤$82,400

≤$141,096

If there were no income cap ,

only 2 percentage points

more relief would go to the

top 10 percent of earners.

If there were no income cap

$10,000 per person, income cap of $125,000

individual or $250,000 household

$10,000 per person, no income caps

30% of debt relief

If there were no income cap , only

2 percentage points more relief would

go to the top 10 percent of earners.

Bottom fifth of earners

Second-lowest fifth

Second-highest fifth

Top fifth of earners

Millions of people stand to benefit from the relief, but Mr. Biden’s announcement kicked off a heated debate about its merits.

On both sides of the political aisle, analysts and officials have worried about the plan’s effects on inflation, in part because wiping away debt could inject money into the economy. (White House economic advisers made the case that by resuming loan payments and including income caps, the plan would have a negligible effect on rising consumer prices.)

Others have argued that while the relief could help many people, it does not address the underlying problems of how expensive college has become. Some economists have even warned the move could encourage colleges and universities to raise prices with the federal government footing the bill.

“I understand that not everything I’m announcing today is going to make everybody happy,” Mr. Biden said on Wednesday. “But I believe my plan is responsible and fair.”

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Is Rising Student Debt Harming the U.S. Economy?

• For decades, the U.S. government has helped students finance their higher education to bolster the country’s economic competitiveness and national security.
• U.S. student loan debt has ballooned in recent years, outpacing most other forms of consumer borrowing.
• P resident Joe Biden has launched several plans to provide student debt relief, but they have sparked intense opposition and legal challenges.

Introduction

Student loan debt in the United States has grown enormously in recent years and is now one of the largest forms of consumer borrowing in the country. Though the benefits of a college education outweigh the costs in most cases, many graduates are concerned about entering a weak job market and worry that lingering debt could hinder their financial futures. 

Most economists see student loan programs as a sound investment in U.S. workers and essential for maintaining the country’s competitive edge, but questions remain about the appropriate level of federal involvement. A debate has also emerged over whether the government should forgive student loan debt and, if so, how much it should forgive. The Joe Biden administration has introduced several student debt forgiveness plans, but its most sweeping proposal was struck down by the Supreme Court.

How much student debt is there?

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Student debt has more than doubled over the last two decades. As of September 2023, forty-three million U.S. borrowers collectively owed more than $1.6 trillion in federal student loans. Adding private loans brings that amount above $1.7 trillion, so that total student debt exceeds debt from auto loans and credit cards. Only home mortgage debt, at more than $12 trillion , is larger.

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Student debt is growing as more and more students attend college. In the late 1980s and early 1990s, most high schoolers did not enroll at colleges or universities; of those that did, less than half borrowed money to do so. In 2022, almost two-thirds of recent high school graduates were enrolled, and most took out student loans. 

The average student is also taking on more debt: the balance per borrower rose 39 percent from 2008 to 2022, according to U.S. News & World Report . Students are generally borrowing more because college tuition has grown many times faster than income. The cost of college—and resulting debt—is higher in the United States than in almost all other wealthy countries, where higher education is often free or heavily subsidized. Meanwhile, U.S. states pulled back funding for public universities and colleges in the wake of the 2008 financial crisis .

Who owes it?

Roughly one in five Americans holds student debt. Most students graduate with around $30,000 in loans, but a small portion of borrowers hold an outsize share of student debt. More than one-third of the total debt is held by the 7 percent of borrowers who owe more than $100,000, according to the Washington Post . However, borrowers with smaller amounts of debt often have a more difficult time repaying their loans, as higher debt from graduate or professional degrees can pay off with much higher incomes. Students who do not complete their degrees often struggle the most ; their default rate is three times higher than those who graduate.

Additionally, the type of institution makes a difference in how much debt is owed. About half of outstanding student debt is held by people who went to private schools, which enrolled just 23 percent of higher education students in 2021. 

There is also a racial disparity in student borrowing that many experts say is problematic and the result of decades of systemic discrimination. Black college students generally take on more debt than white students, and they are more likely to struggle with loan repayment after graduating, in part because they typically have lower levels of family wealth. Black, Latinx, and American Indian students are all more likely to default on their loans than white students.

Why do students take on debt?

Most U.S. students have an incentive to borrow because higher education is typically required for the highest-paying jobs. A worker with a bachelor’s degree earns 1.8 times the amount a person with a high school diploma does, while those with doctorates or professional degrees earn more than double, according to the U.S. Bureau of Labor Statistics. 

However, analysts caution that the return on investment in terms of future income can vary widely, depending on factors including a student’s major and the institution they attended. A 2019 study [PDF] by Federal Reserve economists found that although a college education still provides a boost in earnings, the increase in wealth a degree provides has declined significantly over the past fifty years, due to the rising cost of college and the increase in other forms of consumer debt.

Why does the government lend to students?

The U.S. government invests in higher education for its people—through need-based tuition grants, student loan programs, veterans’ benefits, and research grants—because an educated and highly skilled workforce promotes national prosperity. Highly educated workers provide greater tax revenues, are generally more productive and civically engaged, and are less reliant on social programs. Moreover, postsecondary education is seen by most experts as fundamental to a dynamic, innovative economy. Major U.S. research universities, such as Duke, Harvard, and Stanford, often anchor regional innovation clusters.

What is the history of U.S. student lending programs?

The federal government began taking a large role in funding higher education after World War II. The Servicemen’s Readjustment Act of 1944, commonly known as the GI Bill, provided tuition assistance and many other benefits, including low-interest home loans, to nearly eight million returning veterans. The program continues to pay tuition for hundreds of thousands of servicemembers and veterans each year. 

However, federal student lending did not begin until the Cold War. In response to the Soviet Union’s launch of Sputnik in 1957, Congress passed the National Defense Education Act, sweeping legislation that created federally funded student loan programs and supported national security–related fields, including science, math, and foreign languages. In 1965, the Lyndon B. Johnson administration expanded federal involvement at all levels of education with the Higher Education Act (HEA), which laid the foundation for the current system of federal student lending. Since then, Congress has passed laws that expand loan eligibility and allow parents to borrow on behalf of their children. 

The federal government also provides need-based aid in the form of Pell Grants, which were established in 1972 and students do not have to repay. But funding levels for the program have not kept pace with the rising cost of college, resulting in more students turning to loans.

The U.S. government used to guarantee or subsidize private loans through the Federal Family Education Loan (FFEL) program, but critics, including President Barack Obama, argued that this was a handout to commercial lenders, and the program was ended in 2010. All federal student loans have since been issued directly by the Department of Education. 

In response to the COVID-19 pandemic, the Donald Trump administration provided tens of millions of student borrowers with temporary relief from making payments on their loans. In one of his first acts in office, President Biden extended the payment moratorium for federal student loan borrowers until October 2021. He also expanded it to include private loans made under the discontinued FFEL program that are in default, closing a loophole that affected more than one million borrowers. The Biden administration extended the freeze multiple times, with the final extension expiring in October 2023. Since then, only half of borrowers have resumed payments; many of the remainder have defaulted or involuntary entered forbearance.  

Some education finance experts say the increase in federal student lending is making college less affordable for many by allowing institutions to artificially inflate tuition. William J. Bennett, the secretary of education under President George H.W. Bush, argued in 1987 that federal aid was shielding colleges from market pressures, allowing them to charge ever increasing prices. The so-called Bennett hypothesis continues to be debated by education experts. A 2014 study found that federal aid led to tuition increases only at private, for-profit schools, though other research [PDF] has established a link between aid and rising tuition at public schools as well.

What is the current debate?

Many experts and policymakers agree that both the rising cost of college and the existing volume of loans need to be addressed. They acknowledge that surging student debt is harming younger generations of students by preventing them from reaching their financial goals while exacerbating racial inequality. While older generations were generally able to pay their way through school, or find jobs that enabled them to pay off their debts, that no longer holds true for recent cohorts, they argue. The combination of soaring tuition costs and the recessions caused by the 2008 financial crisis and the COVID-19 pandemic have particularly affected the millennial and subsequent generations. Additionally, student loans are more difficult to discharge in bankruptcy than other forms of consumer debt, such as from credit cards, because borrowers are required to prove “undue hardship” from their loans in court.

However, experts and policymakers differ in their proposals for how to address the problem. The most recent debate has centered on the issue of loan cancellation: some have called for universal loan cancellation in varying amounts, while others say only targeted relief is warranted. Still other experts have proposed system-wide reforms beyond canceling existing debt.  

Large-scale debt cancellation. Universal debt relief calls for a blanket cancellation of all existing student loans. Other large-scale plans call for forgiving up to $50,000 for all borrowers. Proponents argue that large-scale debt cancellation would help advance racial and socioeconomic equality and boost the economy. Without the burden of student loans, they say, more people will be able to buy homes, take entrepreneurial risks, or save for retirement. Opponents counter that broad cancellation would be unfair to those who successfully paid off their student loans or who avoided debt altogether. They also say it would disproportionately benefit high-earning Americans, such as doctors and lawyers, who may have large debts but would likely not struggle with their payments. Another concern is who would bear the cost, since the price tag is estimated to be in the hundreds of billions to trillions of dollars.

Targeted debt relief . These plans would forgive most or all debt for borrowers who make under a certain income; supporters of targeted relief often advocate for income-driven repayment (IDR) plans. IDRs allow borrowers to pay an amount proportional to their income, and have their remaining balance cleared after ten years assuming they’ve made all qualifying payments. While proponents argue that targeting the lowest-income borrowers is the fairest approach , critics say that it would do little to stop universities from raising tuition and other costs.

Systemic reforms . A 2020 report by the Aspen Institute proposed system-wide reforms such as limiting tuition rates at pub­lic colleges, increasing aid for low-income students, incentivizing employers to offer tuition assistance, and restricting federal-loan-fund distribution to institutions that have a history of low post-graduation employment rates and other poor outcomes for students. Policymakers are now increasing their efforts to treat student loans like any other consumer debt, creating pathways to discharge student debt by filing for bankruptcy . Other experts and lawmakers say public funding should be increased to, for example, make public colleges and universities tuition-free. 

Some analysts say the perception that college is the only path to a well-paying job drives up demand and harms students who could be better served by other forms of education. In recent years, politicians from both major parties, including former President Trump, have advocated increasing access to career and technical education (also known as vocational education) as an alternative to college. Indeed, enrollment in trade programs has increased since 2020, even as enrollment at two- and four-year public institutions is yet to recover from the pandemic.

What has Biden proposed?

In 2022, Biden proposed a landmark executive order to cancel close to one-third of the federal government’s student loan holding, worth $441 billion. His plan would have forgiven up to $20,000 in student debt for Pell Grant recipients and up to $10,000 for non–Pell Grant recipients making less than $125,000 per year. The program was expected to help around forty million borrowers, nearly half of whom would have had their entire debt forgiven. The estimated $400 billion outlay [PDF] drew fierce opposition from critics, who viewed the program as an inflationary burden on taxpayers. In June 2023, the Supreme Court struck down the plan in a 6-3 vote, ruling that the president did not have the statutory authority to cancel student loan debt.  

In response, Biden introduced a new, scaled-down plan to reduce U.S. student loan debt, which launched in August 2023. Under the so-called SAVE plan, borrowers with undergraduate loans could see their monthly payments cut by as much as half, with loan balances forgiven after ten or twenty years of payments, depending on income level. The White House anticipates that the plan will allow borrowers to repay $0.71 per dollar borrowed, though some analysts expect lower repayment rates. Projections of the program’s cost vary, but some place it even higher than that of the initial debt forgiveness plan. (The Biden administration has estimated that it will cost $138 billion over the next ten years.) Biden has also introduced a new process to forgive student loans outright for more than 30 million borrowers, using authority from the HEA. As of April 2024, Biden has canceled a total of $153 billion in student debt for more than four million borrowers.

Opponents raised concerns about the cost of the SAVE plan, though experts say it stands on stronger legal footing than the previous debt forgiveness program. Critics also say that the new plan still burdens taxpayers and does little to reduce rapidly rising tuition costs. Some progressive lawmakers, while applauding the plan, say that it is not radical enough to fight the spiraling debt crisis. Meanwhile, many analysts point out that any plan that aims to broadly cancel debt relief is likely to face legal challenges , regardless of its legislative origin.

To other experts, student loan forgiveness would fail to address systemic issues. CFR’s Roger W. Ferguson Jr. writes that such programs miss “the fundamental weaknesses of higher education, namely an unacceptably low completion rate, overdependence on loans to attend college, and high and rapidly increasing costs.” He also pushes for upgrades to “modernize” the system used to manage student loans, which he says could expedite both loan forgiveness and repayment, saving borrowers up to $100 billion.

Still, proponents say IDRs such as SAVE are among the best options to reduce student debt. They argue that the Biden administration should now focus on reducing administrative hurdles to signing up for the program. A 2022 study by the Government Accountability Office found that thousands of borrowers who were eligible for forgiveness under existing IDRs were still making payments on their loans, and that the Department of Education “hasn’t done enough to ensure that all eligible borrowers receive the forgiveness to which they are entitled.”

Recommended Resources

CFR expert Roger W. Ferguson Jr. explains how the Biden administration can modernize the federal student loan experience .  

The Congressional Research Service explores federal student debt relief [PDF] in the context of the COVID-19 pandemic.

Forbes Advisor breaks down current statistics on student debt. 

The College Board examines trends and patterns [PDF] in student borrowing. 

The Brookings Institution’s Adam Looney, David Wessel, and Kadija Yilla analyze who owes student debt and who would benefit from debt forgiveness.

The Aspen Institute lays out proposals to mitigate the student debt crisis without canceling loans.

Rhea Basarkar, Noah Berman, Jacqueline Jedrych, Anshu Siripurapu, Mia Speier, and Steven J. Markovich contributed to this Backgrounder.

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The Evolution of Student Debt 2019–2022: Evidence from the Survey of Consumer Finances

• Emily Moschini

In recent years, economists and policymakers have been interested in the burden of student debt across socioeconomic groups. In this Economic Commentary , we use the two most recent waves of the Survey of Consumer Finances, collected in 2019 and 2022, to study changes in the joint distribution of student debt and two measures of “ability-to-pay,” income and net worth. We find that between 2019 and 2022, both the fraction of families with student debt and real student debt per family were essentially unchanged, and aggregate student debt fell as a fraction of aggregate income and net worth. However, over the same period, the distribution of student debt shifted toward higher-income and wealthier families, with a rise in the average student debt in the highest quintile of both income and net worth. Further, this shift was not driven by changes in the distribution of debtors, but, instead, in the amount of debt per family.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This paper and its data are subject to revision; please visit clevelandfed.org  for updates.

Introduction

Student debt is the third-largest category of consumer debt in the United States and currently stands at approximately $1.6 trillion. 1 In recent years, the increasing magnitude of student debt has coincided with increased interest in student debt cancellation policies and subsequent debate over the burden of student debt across socioeconomic groups. 2 In this Economic Commentary , we use the two most recent waves of the Survey of Consumer Finances (SCF) to explore changes from 2019 to 2022 in both the aggregate level and distribution of student debt across income and net worth for US families.

The SCF is a triennial survey conducted by the Federal Reserve Board designed to provide an overview of the balance sheets of a representative sample of US families. Conducted in its current form since 1989, the SCF collects information on family income, net worth, balance sheet components (including student loans), credit use, and other financial outcomes.

Before turning to our findings, we first recall three observations from Aladangady et al. (2023), who provide a broad overview of changes in family finances between the 2019 and 2022 waves of the SCF. First, between 2019 and 2022, median net worth grew by 37 percent in real terms, an increase that was more than twice as high as any past increase across consecutive waves of the SCF and much higher than the corresponding 3 percent growth in median income over the same period. Second, between 2019 and 2022, median income rose by less than mean income, suggesting an increase in income inequality, while the reverse was true for net worth, suggesting a decrease in net worth inequality. Third, between 2019 and 2022, the percentage of families with any student debt was unchanged at approximately 22 percent, and the median and mean amounts of debt among families with student debt remained at approximately $25,000 and $47,000, respectively.

These findings of Aladangady et al. (2023) illustrate that although the percentage of families with student debt and the average amount of debt per family were unchanged between 2019 and 2022, the change in the distributions of income and net worth was more subtle and warrants further analysis. In this Economic Commentary , we therefore extend the analysis of Aladangady et al. (2023) by exploring changes in the joint distribution of student debt, income, and net worth. We find that between 2019 and 2022, aggregate student debt grew by less than both aggregate income and net worth and that there was a shift in the distribution of student debt to the upper quintiles of both income and net worth. Further, most of this change was driven by changes in the amount of student debt held by student debtors in each quintile rather than by changes in the distribution of student debtors across quintiles.

Although SCF data do not permit us to ascribe causal effects to policy responses (as we are only looking at cross-sectional data three years apart), our analysis and focus are partly motivated by the COVID-19 pandemic and subsequent policy responses related to student debt. Indeed, there were several significant national policy responses to the pandemic. Most notably for our purposes, the federal government enacted a payment pause for most federal student loans from March 2020 through August 31, 2023.

During this time, certain kinds of student debt owed to the federal government were automatically considered to be in forbearance. For such loans, no payment was due for the duration of the pause (although borrowers could choose to continue to repay), and interest on these loans did not accrue. 3 In present value terms, then, this payment pause therefore represented a net transfer to holders of student debt as interest on these loans was not retroactively applied for the duration of the pause. Interest began accruing on these loans on September 1, 2023, and student debt payments resumed in October 2023, and so the payment pause was in effect during the period in which the 2022 SCF was conducted. 4

Our analysis consists of three distinct parts. First, we document changes in the aggregate amount of student debt, income, and net worth recorded in the SCF and provide summary statistics for income and net worth for families with student debt (“student debtors”) and for the whole population. Second, we examine how the average amount of student debt varies across quintiles of income and net worth. Third, we explore the extent to which these changes in averages by quintile represent changes in the incidence of student debt; we do this by computing analogous figures for the population of student debtors. Note that in this Economic Commentary we record all figures in 2022 dollars.

Aggregate figures and summary statistics

In the 2019 SCF, approximately 21.4 percent of families recorded any student debt, and the aggregate amount of this debt was $1.29 trillion. For the 2022 SCF, the corresponding figures were approximately 21.7 percent and $1.34 trillion, respectively. 5 Although the aggregate amount of student debt grew slightly, as did the percentage of households with student debt, as a fraction of aggregate income recorded in the SCF, aggregate student debt fell from approximately 8.15 percent to 7.21 percent. Similarly, aggregate student debt fell from approximately 1.16 percent to 0.96 percent as a fraction of aggregate net worth as recorded in the SCF.

Before turning to analysis of distributions, we first study how families with student debt (student debtors) differ from the population as a whole. Of the different notions of financial well-being recorded in the SCF, we focus on income and net worth. Table 1 records the median and mean income and net worth for the whole population and for families with student debt.

The statistics in Table 1 illustrate the difficulty in making a simple comparison between student debtors and the general population without controlling for other attributes. For both waves, student debtors have higher median income but lower mean income and lower median and mean net worth when compared with the general population. The low net worth of student debtors relative to the general population is unsurprising because student debt is typically incurred to finance education early in life before debtors have accumulated much wealth (net worth). Indeed, the median ages for SCF respondents in the whole population and the population of student debtors were 52 and 37, respectively, in 2019, while for 2022 the corresponding ages were 52 and 39, respectively. Motivated by this last point, Table 2 complements Table 1 by providing summary statistics for the population of families in which the respondent is under the age of 35.

Table 2 again illustrates the difficulty in making simple comparisons of financial well-being between student debtors and the whole population: young student debtors have higher median income than the whole young population in both waves, but lower median and mean net worth. Further, the mean income of young student debtors exceeded that of the general population under the age of 35 in 2019 but not in 2022. However, note that for both the whole population and the population of young families, we see a sharp difference in net worth between student debtors and nondebtors.

Table 1 and Table 2 therefore show that both the median and mean net worth of student debtors are below that of families without student debt, regardless of whether one considers the whole population or restricts attention to families in which the SCF respondent is below the age of 35. However, the comparison between debtors and nondebtors is more subtle when considering income, with the relative magnitudes between student debtors and families without debt depending on the metric employed (median or mean) and the particular wave of the SCF considered. We now take a closer look at the incidence and burden of student debt by studying its distribution across quintiles of income and net worth.

Student debt by income and net worth quintiles

Figure 1 illustrates the variation of the average student debt held by quintiles of income and net worth across the 2019 and 2022 waves. As seen in the left-hand side of Figure 1, between the two waves there was a significant increase in the average student debt owed by families in the highest quintile of income and a change in the shape of student debt’s distribution across income quintiles. In 2019, the distribution was slightly hump-shaped, rising for the first four quintiles before falling for the highest, but, in contrast, in 2022 the average rose across income quintiles.

As seen in the right-hand side of Figure 1, in both 2019 and 2022 the distribution of average student debt by quintiles of net worth was qualitatively different than that for income and was highest in the lowest quintile. As noted above, this concentration in the lowest quintile is not surprising given the lifecycle nature of debt accumulation: student debt is typically accrued by young people who have yet to accumulate much wealth (net worth). However, even though the distribution of student debt differed between income and net worth, for both variables between 2019 and 2022 there was an increase in the average debt held by families in the highest quintile. Further, for net worth, the highest proportional increase in average student debt occurred in the highest quintile. Thus, although median and mean student debt were almost unchanged between the 2019 and 2022 waves, Figure 1 shows that the distribution of student debt shifted rightward toward higher-income and wealthier families. 6

Intensive versus extensive margin

As noted above, less than a quarter of families in the 2019 and 2022 waves of the SCF hold any student debt at all. An exclusive focus on averages (even broken down by quintiles) can potentially obscure distributional changes. For instance, the increase depicted in Figure 1 in the average student debt held by the highest income quintile could be a result of changes in the levels of debt held by student debtors in this quintile (intensive margin changes) or a change in the percentage of families with any student debt (extensive margin changes).

To explore this point, Figure 2 depicts the percentage of families in the SCF who hold any student debt within each quintile of income or net worth. The left-hand side of Figure 2 shows that there was essentially no change in the incidence of student debt within any income quintile. The situation with net worth on the right-hand side of Figure 2 is more complicated, with a decrease in the first quintile and increases in the middle three quintiles. However, as with income, the change in incidence for the highest quintile between 2019 and 2022 was slight.

Figure 2 shows that the rise in the average student debt held by the highest quintile of income and net worth in Figure 1 was not a result of changes in the percentage of families with student debt as this is the same across the two SCF years.

Figure 3 complements this analysis by depicting the average student debt held among student debtors, again broken down by quintiles of income and net worth. Figure 3 shows that the sharpest rises in the average student debt among student debtors occurred for the fifth quintile in both income and net worth. Indeed, in 2022 the average student debt held by student debtors in the highest quintile of net worth was essentially the same as that held by the lowest quintile, a noteworthy change relative to 2019’s average in which the student debt held by the lowest quintile far exceeded that of the top quintile.

Mean-to-median ratios and the role of outliers. Figure 2 and Figure 3 show that the increase depicted in Figure 1 in the average student debt held by the highest quintiles of income and net worth primarily represents an increase in the average debt per student debtor family in these quintiles and not a reallocation of such families across the distribution for either measure. Was this a uniform increase in the debt held by families in the top quintile, or was it driven by an increase in the number of families with high debts? To examine this question, Figure 4 plots the ratio of the conditional mean to the conditional median for each quintile of income and net worth.

If the increases in the averages in any quintile were driven by a small fraction of outliers, we would expect the mean-to-median ratio to rise. However, Figure 4 shows that for both income and net worth, in the highest quintile this ratio fell between the 2019 and 2022 waves of the SCF. This suggests that the rise in the average debt held in the highest quintile of income and net worth was broad-based throughout the quintile.

The SCF offers a snapshot into the balance sheets of families in the United States. In this Economic Commentary , we have documented several facts regarding the change in the distribution of student debt between the 2019 and 2022 waves. First, aggregate student debt rose in terms of aggregate amount owed but fell as a fraction of aggregate income and net worth. Second, the average amount of student debt per family rose most, in proportional terms, for the highest quintiles of income and net worth. Third, the incidence of student debt in the highest quintiles of income and net worth was essentially unchanged, implying that the rise in the average debt held in these quintiles was not a result of changes in the number of student debtors in each quintile. Fourth, the mean-to-median ratio in student loans in the upper part of the distributions of income and net worth fell slightly, suggesting that this was a broad-based increase in debt and not driven by a small number of outliers within each quintile. These findings are potentially of interest to social scientists and policymakers because they have implications for the marginal effect of cancellation on social welfare. The more student debt balances are positively correlated with measures of ability to repay (such as income and net worth), the lower the welfare gains of debt cancellation are likely to be.

• Aladangady, Aditya, Jesse Bricker, Andrew C. Chang, Sarena Goodman, Jacob Krimmel, Kevin B. Moore, Sarah Reber, Alice Henriques Volz, and Richard A. Windle. 2023. “Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances.” Washington: Board of Governors of the Federal Reserve System. https://doi.org/10.17016/8799 .
• Bricker, Jesse, Meta Brown, Simona Hannon, and Karen M. Pence. 2015. “How Much Student Debt Is Out There?” FEDS Notes , August. https://doi.org/10.17016/2380-7172.1576 .
• Catherine, Sylvain, and Constantine Yannelis. 2023. “The Distributional Effects of Student Loan Forgiveness.” Journal of Financial Economics 147 (2): 297–316. https://doi.org/10.1016/j.jfineco.2022.10.003 .
• Goss, Jacob, Daniel Mangrum, and Joelle W. Scally. 2023. “Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal.” Staff Report 1046. Federal Reserve Bank of New York. https://fedinprint.org/item/fednsr/95425 .
• Based on data from the Consumer Credit Panel (CCP); see the 2023 Q4 Quarterly Report on Household Credit and Debt available at https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q4 for further information on aggregate quantities of debt. Return to 1
• See, for example, Catherine and Yannelis (2023) and Goss et al. (2023). Return to 2
• See the official release available at https://studentaid.gov/announcements-events/covid-19 for further details on eligible loans. Return to 3
• See the FAQ section at https://studentaid.gov/manage-loans/repayment/prepare-payments-restart for further details on the restarting of student loan payments. Return to 4
• These aggregate quantities are lower than those reported in the Quarterly Report on Household Credit and Debt quoted in endnote 1. This is, in part, because the SCF will not record the financial outcomes of economically independent people living at the same address as the respondent. See Bricker et al. (2015) for further discussion. Return to 5
• This is consistent with Aladangady et al. (2023), who document an increase in the share of debt held by the upper two quintiles of the variable “usual income” as measured in recent waves of the SCF. Return to 6

Suggested Citation

Moschini, Emily, and Tom Phelan. 2024. “The Evolution of Student Debt 2019–2022: Evidence from the Survey of Consumer Finances.” Federal Reserve Bank of Cleveland,  Economic Commentary  2024-10. https://doi.org/10.26509/frbc-ec-202410

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The Economics of Administration Action on Student   Debt

Higher education financing allows many Americans from lower- and middle-income backgrounds to invest in education. However, over the past 30 years, college tuition prices have increased faster than median incomes, leaving many Americans with large amounts of student debt that they struggle or are unable to, pay off. 

Recognizing the burden of this debt, the Biden-Harris Administration has pursued two key strategies for debt reduction and cancellation. The first, student debt relief (SDR), aims to address the ill effects of flaws in the student debt system for borrowers. The second, the SAVE plan, reforms the federal student loan system, improving student loan affordability for future students and providing current graduates with breathing room during the beginning of a new career.

This issue brief examines the factors that precipitated the current student debt landscape, and details how both SDR and SAVE will enhance the economic status of millions of Americans with student debt: enabling them to allocate more funds towards basic necessities, take career risks, start businesses, and purchase homes. This brief highlights credible research, underscoring how the Administration’s student debt relief could boost consumption in the short-term by billions of dollars and could have important impacts on borrower mental health, financial security, and outcomes such as homeownership and entrepreneurship. This brief also details how the SAVE plan makes repaying college costs more affordable for current borrowers and future generations. CEA simulations show that, under SAVE, an average borrower with a bachelor’s degree could save $20,000 in loan payments, while a borrower with an associate degree could see nearly 90 percent savings compared to the standard loan repayment plan. These changes enable more people to pursue education and contribute to the broader economy.

Why do borrowers need relief?

Over the last 20 years especially, the sticker price of college has risen significantly. Despite recent minor declines, sticker prices at public universities (which over 70% of undergraduate students in the United States attend) are 56% higher today than two decades ago. [1] While there are many reasons for this trend, the most rapid increases in tuition often occur during economic downturns as tuitions grow to fill the budgetary holes that are left when states cut their support to public colleges ( Webber, 2017 ; Deming and Walters 2018 ). This is especially problematic given many people choose to return to school during economic downturns ( Betts and MacFarland 1995 ; Hillman and Orians 2013 ). Unfortunately, contracting state appropriations have played a role in shifting the responsibility of financing away from public subsidies and toward students and families ( Turner and Barr, 2013 ; Bound et al., 2019 )–leading many students to take on more debt.

At the same time that college sticker prices have risen, the wage premium (the earnings difference between college goers and high school graduates) has not seen analogous growth. While obtaining a college degree remains a reliable entry point to the middle class, the relative earning gains for degree holders began to stagnate in the early 2000s after increasing for several decades. As shown in Figure 1b, since 2000, the wage premium for both bachelor’s degree holders and those with “some college” education (which includes anyone who enrolled in college but didn’t earn a BA) saw declines around the 2001-02 and 2008-10 recessions and a slow, inconsistent recovery thereafter. The decline is particularly notable for students who didn’t complete a four-year degree, a group that includes two-year college enrollees who have among the highest student loan default rates. [2]

Traditional economic theory tells us that individuals choose to invest in post-secondary education based on the expected costs and wage returns associated with the investment. But rapid and unforeseeable rises in prices and declines in college wage premia have contributed to decades of “unlucky” college-entry cohorts affected by a form of recessionary scarring . For example, a student who entered college in 2006 would have expected a sticker price of roughly $8,800 per year for a four-year college, but actually faced tuition of over $10,000 in their final year of college, a roughly 15% difference. This same student, upon graduation if they worked full time, would have earned about $3,500 less, on average, than what they would have expected upon entering. This example illustrates that many borrowers made sound borrowing decisions with available information, but as a result of these trends ended up with more debt than they could afford to pay off. [3] Consistent with this notion, the default rate for “unlucky” college entry cohorts of the 2000s is much higher than those of other cohorts, with undergraduate default rates doubling between 2000 and 2010: in 2017, 21 percent of undergraduate loan holders and 6 percent of graduate loan holders defaulted within 3 years ( CBO, 2020 ).

It is important to note that sticker prices for public institutions have declined 7 percent since 2021, the same period over which college wage premiums have been rising. Declining tuition, for the first time in decades, coincided with increased investment in higher education through pandemic-era legislation such as the American Rescue Plan, which allocated $40 billion in 2021 to support institutes of higher education and their students. Despite these improvements, as well as significant advances in the return on college investments over the last three years, many current borrowers still need some relief. The Administration has taken significant action to protect future cohorts from similar risks.

How the Administration is providing relief

Retrospective: Student Debt Relief Helps Existing Borrowers

In a commitment to help those who are overburdened with debt, the Administration has already approved Federal student debt cancellation for nearly 4 million Americans through various actions. Today , the Administration announced details of proposed rules that, if finalized as proposed, would provide relief to over 30 million borrowers when taken together with actions to date.

Importantly, much of this debt forgiveness comes from correcting program administration and improving regulations related to laws that were on the books before this Administration took office. This debt relief has affected borrowers from all walks of life, including nearly 900,000 Americans who have dedicated their lives to public service (such as teachers, social workers, nurses, firefighters, police officers, and others), borrowers who were misled and cheated by their institutions, and borrowers who are facing total or permanent disability, including many veterans. By relieving these borrowers of long-held, and in some cases very large burdens of debt, relief can have significant meaning and impact for borrowers, families, and their communities.

By reducing debtors’ liabilities, debt relief raises net worth (assets, including income less liabilities). Debt relief can also ease the financial burden of making payments—leading to greater disposable income for borrowers and their families, which enhances living standards and could positively influence decisions about employment, home buying, and mobility. While there are few direct estimates of the effect of debt cancelation in the literature, estimates based on the relationship between wealth and consumption suggest that this forgiveness could increase consumption by several billions of dollars each year in the next five to ten years.

Additionally, a recent study suggests that student debt cancellation can lead to increased earnings (due to greater geographic and career mobility), improved credit scores, and lower delinquency rates on other debts ( Di Maggio, Kalda, and Yao, 2019 ). This can facilitate access to capital for starting a business or buying a car or home. As home mortgages often require a certain debt-to-income ratio and depend heavily on credit scores, student debt cancellation could potentially increase home ownership. Indeed, based on the mechanical relationship between housing industry affordability standards and debt-to-income ratios, industry sources have suggested that those without student debt could afford to take out substantially larger mortgages ( Zillow, 2018 ). Other research also indicates a negative correlation between student loan debt and homeownership ( Mezza et al., 2020 ).

It is important to note that, while these pecuniary benefits are important, the benefits associated with debt relief are not merely financial. Experimental evidence has linked holding debt to heightened levels of stress and anxiety ( Drentea and Reynolds, 2012 ), worse self-reported physical health ( Sweet et al., 2013 ), and reduced cognitive capacity ( Robb et al., 2012 ; Ong et al., 2019 ). Studies also show that holding student debt can be a barrier to positive life cycle outcomes such as entrepreneurship ( Krishnan and Wang, 2019 ), and marriage ( Gicheva, 2016 ; Sieg and Wang, 2018 ). Student debt relief has the potential to improve these key outcomes for millions of borrowers.

Prospective: The SAVE Plan Helps Prevent Future Challenges

To address unaffordable education financing moving forward, the Administration has also introduced the Saving on a Valuable Education (SAVE) loan repayment program. The SAVE plan prospectively helps student borrowers by ensuring that once they graduate, they never have to pay more than they can afford towards their student loan debt. Importantly, the SAVE plan protects borrowers from being “unlucky” by ensuring that high tuition or low earnings do not result in loan payments that borrowers can’t afford. The CEA has detailed the real benefits of SAVE for borrowers in issue briefs and blogs , underscoring that SAVE is the most affordable student loan repayment program in U.S. history. By substantially reducing monthly payment amounts compared to previous income driven repayment (IDR) plans and reducing time to forgiveness to as little as 10 years for people who borrowed smaller amounts, the SAVE plan can mean tens of thousands of dollars in real savings for borrowers over the course of repayment.

Figure 2 gives the example of two representative borrowers. Take the first, a 4-year college graduate who has $31,000 in debt and earns about $40,500 per year. Under a standard repayment plan, this borrower would pay roughly $330 dollars each month for 10 years. Under SAVE, this borrower would pay about $50 per month for the first ten years, and on average about $130 per month for the next 10 years. Over a 20-year period, this borrower would make roughly $17,500 less in payments, not accounting for inflation over that period. This represents a 56 percent reduction in total payments compared to the standard repayment plan and includes considerable loan forgiveness. Similarly, the representative 2-year college graduate has $10,000 in debt and earns about $32,000 per year. Under a standard plan, this borrower would pay $110 dollars each month for 10 years. Under SAVE, this borrower would pay $0 per month for the first two years, and under $20 per month for the next eight years before their debt is forgiven at year 10. Overall, this borrower would be responsible for roughly $11,700 less in lifetime payments, not accounting for inflation. This borrower sees nearly 90 percent savings compared to the standard plan and receives considerable loan forgiveness.

SAVE can also have benefits beyond the individual borrower. More money in borrowers’ pockets due to lower payment obligations under SAVE could boost consumption and give borrowers breathing room to make payments on other debt. This consumption effect is bolstered by a large literature documenting the benefits of easing liquidity constraints (see, for example, Aydin, 2022 ; Parker et al., 2022 ). Additionally, by shortening time to forgiveness for undergraduate borrowers, SAVE can lead to positive debt-relief outcomes (as discussed above) for many more borrowers.

Another key aspect of income-driven repayment plans like SAVE is that they protect borrowers from having to make large payments when incomes are low. Specifically, the required payments are not based on the initial loan balance, but on one’s income and household size so that those cohorts who need to borrow more to pay for college do not make larger payments unless they make more income. SAVE also protects more of a borrower’s income as discretionary and, when the full plan is implemented in Summer 2024, will limit monthly payments on undergraduate loans to 5 percent of discretionary income. In fact, for single borrowers who make less than $33,000 per year, the required monthly payments will be zero dollars. From a finance perspective, the SAVE plan provides a form of insurance against tuition spikes and economic downturns–taking some of the risk out of investing in one’s education while also bringing costs down.   

A common concern, and one that could mute these benefits, is that increases in the generosity of education financing may encourage institutions to raise tuition and fees in response, a phenomenon commonly referred to as the Bennett Hypothesis (for an excellent overview of research, see Dynarski et al., 2022 ). Theoretically, in a market when sellers are maximizing profits, any policy that increases demand will also increase prices. However, this is less likely to impact the over 70% of U.S. undergraduates who attend public colleges, which are not profit-driven and often have statutorily set tuition. Consistent with this notion, the evidence in support of the Bennett Hypothesis primarily comes from for-profit colleges, which are highly reliant on students who receive federal financial aid ( Cellini and Goldin, 2014 ; Baird et al, 2022 ). [4] Importantly, although the for-profit sector enrolls some of the country’s most vulnerable students, enrollment in the sector in 2021 accounted for only 5 percent of total undergraduate enrollment, suggesting that aggregate tuition increases in response to changes in education financing may be modest. Furthermore, the Biden-Harris Administration has taken action to crack down on for-profit colleges that take advantage of, or mislead, their students. And, recent regulations, such as the Gainful Employment ( GE ) rule, add safeguards against unaffordable debt regardless of more generous education financing. 

Although the SAVE plan stands to benefit borrowers of all backgrounds, the plan has important racial and socioeconomic equity implications because it is particularly beneficial for those borrowers with the lowest incomes. Centuries of inequities have led to Black, Hispanic, and Native households being more likely than their White peers to fall in the low end of the income distribution. This means that, mechanically, the SAVE plan’s benefits could accrue disproportionately to these groups. Indeed, using completion data from recent years, an Urban Institute analysis estimates that 59 percent of credentials earned by Black students and 53 percent of credentials earned by Hispanic students are likely to be eligible for some amount of loan forgiveness under SAVE, compared to 42 percent of credentials earned by White students ( Delisle and Cohn, 2023 ). Finally, the interest subsidy described in an August 2023 CEA blog , prevents ballooning balances when a borrower cannot cover their entire monthly interest payment, a phenomenon that has historically led to many borrowers in general, and Black borrowers in particular, to see loan balances that are higher than their original loan amount, even several years out from graduating with a bachelor’s degree ( NCES, 2023 ).

Broader economic impacts

The benefits associated with SDR and SAVE for millions of Americans are considerable. In the short run, under both SDR and SAVE, those who receive relief may be able to spend more in their communities and contribute to their local economies. Summing the likely consumption effects of the Administration’s student debt relief and SAVE programs results in billions of dollars in additional consumption annually. Despite the modest effect on the macroeconomy as a whole (note that the U.S. economy is roughly $28 trillion with a population of roughly 320 million), these consumption effects represent incredibly meaningful impacts on individual borrowers’ financial security and the economic wellbeing of their communities.

SAVE, because it brings down the cost of taking out loans to go to college, has the potential to lead to longer-term economic growth if it leads to greater educational attainment. This increased attainment can occur both through improved retention and completion of post-secondary education, and also the movement of students into college who would not have otherwise enrolled. There is a long macroeconomics literature linking educational attainment in a nation to GDP growth (see, for example, Lucas, 1988 ; Hanushek and Woesmann, 2008 ). While identifying the causal effect of schooling on GDP is challenging, researchers, using a variety of approaches, find that a one-year increase in average education (for the entire working population) would increase the real GDP level by between 5 and 12 percent ( Barro and Lee, 2013 ; Soto, 2002 ) —a result that is in line with the micro-founded relationship between years of education and earnings ( Lovenheim and Smith, 2022 ).

To put this relationship in perspective and highlight the growth potential of increasing educational attainment, the CEA simulated the hypothetical effect on GDP of increasing the college-going rate by 1, 3, and 5 percentage points, respectively. This range represents the kinds of changes in college going that have been observed over several years: the college enrollment rate for 18- to 24-year-olds declined 4 percentage points between 2011 and 2021 after increasing by 6 percentage points between 2000 and 2011 ( NCES 2023 ). CEA simulations show that by 2055, a policy that increased the college going rate by 1, 3, and 5 percentage points could increase the level of GDP in 2055 (thirty years from now) by 0.2, 0.6, and 1 percent respectively. This represents hundreds of billions of dollars of additional economic activity in the long run.

While increased growth is an exciting possibility, it would only occur insofar as SAVE leads to increased educational attainment, which is uncertain. The academic literature has found that student loans can promote academic performance ( Barr, et. al. 2021 ), and increase educational attainment by increasing transfers from 2-year to 4-year colleges and increasing college completion among enrollees ( Marx and Turner, 2019 ). At the same time, increases in college-going due to SAVE are by no means guaranteed. While, historically, policies that reduce the cost of college through direct means—such as providing students with generous grant aid, or reducing tuition—have succeeded at raising college enrollment levels ( Dynarski, 2003 ; Turner, 2011 ), a pair of recent studies show that prospective students may only respond to cost changes when they are salient, i.e., they are framed and marketed in the right way ( Dynarski et al., 2021 ), and relatively certain ( Burland et al., 2022 ). However, evidence suggests that there is demand for plans like SAVE ( Balakrishnan et al., 2024 ), particularly as SAVE can provide sizable benefits to borrowers in terms of reducing their long-term debt burden and keep monthly payments low (dependent on a borrower’s income) after they finish school.

This highlights the importance of communicating the benefits of the SAVE program to prospective students who otherwise would not enroll in college due to cost concerns, including potential barriers to paying off student loans in the future. Doing so could lead to meaningful increases in college enrollment, and the resulting improvements in productive capacity could increase the size of the U.S. economy for years to come.

Concluding remarks

The Biden-Harris Administration has taken bold action to address a student debt problem that has been decades in the making. This student debt cancellation will provide well-deserved relief for borrowers who have paid their fair share, many of whom had the proverbial rug pulled out from under them with concurrent rapidly rising tuition and declining returns to a college degree. The relief has and will improve economic health and wellbeing of those who have devoted years of their life to public service, those who were defrauded or misled by their institutions, and those who have been doing all they can to make payments, but have still seen their loan balances grow. Looking to future generations, the Administration implemented the SAVE plan to protect borrowers against tuition spikes and poorer than expected labor market outcomes that often plague students graduating into a period of economic downturn ( Rothstein, 2021 ; Schwandt and von Wachter, 2023 ).

Both student debt relief and SAVE will enhance the economic status of millions of Americans with student debt: enable them to allocate more funds towards basic necessities, take career risks, start businesses, and purchase homes with the understanding that they will never have to pay more than they can afford towards their student loans. Moreover, the SAVE plan makes repayment more affordable for future generations, which helps borrowers manage monthly payments, but also enables more people from all walks of life to explore their full potential and pursue higher education, enhancing the potential of the U.S. workforce and the economy more broadly. 

[1] In 2021, 51% of total undergraduates attended public 4-year universities and 21% attended public 2-years in 2021.

[2] The BA group excludes those with a graduate degree, or any education beyond a bachelor’s degree.

[3] Recent research shows that, despite a positive return on investment (ROI) for many, including the average student, the distribution of ROI has widened over the last several decades such that the likelihood of negative ROI is higher than it has historically been, particularly so for underrepresented minority students ( Webber 2022 ).

[4] There is also some evidence in support of the Bennett Hypothesis at the graduate level ( Black et al. 2023 ).

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Making the Case: Solving the Student Debt Crisis

March 23, 2020  • Financial Security Program , Tim Shaw & Kiese Hansen

For people across the United States, student loan debt is a growing portion of the household balance sheet. More than 40 million Americans have outstanding student loan balances. In 2019, the total amount of student debt owed surpassed $1.5 trillion, now the largest source of non-mortgage debt.

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The problems associated with student loan debt are systemic and consequential for borrowers, their families, their communities, and for the nation’s economy. But these problems are also solvable. This brief outlines goals and solutions for crosssector action from federal, state, and local policymakers, employers, and other stakeholders to address rising student debt burdens, which have grown six-fold in the last 15 years. The brief explains the student debt crisis as it exists today, how it affects household financial security, and who is most impacted. Government officials, researchers, policymakers, private and nonprofit organizations, as well as the public, can use this brief for building momentum and driving action to solve this evolving crisis.

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How the Pandemic Could Affect the Rise in Student Debt

Trends in enrollment, tuition, and families’ ability to pay for college could indicate a departure from past recessions.

• How the Pandemic Could Affect the Rise in Student Debt (PDF)

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• Table of Contents

Spikes in borrowing from the federal government during or closely following recessions in the past three decades have played a key role in the country’s upward march in federal student loan debt. 1 The economic crisis spawned by the COVID-19 pandemic may leave a different legacy, however.

Student debt levels were already pronounced before the pandemic hit, with $91.1 billion in annual federal student lending in 2019-20, up from $20.7 billion in 1990-91. Over that same period, per-student borrowing rose from $2,110 to $6,276, after adjusting for inflation. (See Box 1 for more information on how debt levels are defined in this analysis.)

The Great Recession provides the most recent example of a surge in borrowing following the onset of a downturn. Total annual student loan borrowing from the federal government increased by over $40 billion, or 47%, when adjusted for inflation, from 2008 to 2011. 2 Federal debt also rose for many students, with per-student borrowing increasing by $1,713, or 27%, over the same period. 3

Evidence available as of Nov. 20, 2021, suggests that the COVID-19 downturn could have a very different impact on federal student borrowing, with some trends—such as declining enrollment, which may reduce the total number of borrowers—potentially reducing overall debt levels.

According to the latest data from the College Board, total annual borrowing from the federal government fell by $7 billion, or 8%, between the 2020 and 2021 school years, while per-student borrowing fell by $324, or 5%, over the same time frame. 4

But other patterns that the COVID-19 economic crisis and recovery share with past downturns, such as elevated levels of financial hardship, could mean increased borrowing needs for certain students.

As of March 2021, almost one-fifth of all federal borrowers were in default on their loans, suggesting that repayment challenges are widespread. 5 Changes in reliance on debt to finance higher education could foreshadow shifts in the extent of future repayment difficulties in certain situations, such as if borrowing is rising or falling at institutions with a track record of poor repayment outcomes.

This brief examines three key factors—enrollment numbers, college prices, and families’ ability to pay those prices—that could influence borrowing levels in a weak economy to help explain recent trends in borrowing and assess what COVID-19 and its aftermath might ultimately mean for federal student debt. 6

How This Analysis Measures Federal Student Borrowing Levels

This analysis focuses on two distinct measures of federal student debt: total annual borrowing and perstudent borrowing. It is important to note that these two measures provide different angles on levels of student debt. Total annual borrowing reflects the overall scope of debt issued by the federal government in a given year and doesn’t necessarily capture the amount of debt taken out by individual students. For example, total debt could rise simply because enrollment grows, even if the amount borrowed by individual students and the share of students borrowing remain the same. Per-student borrowing reflects the amount of debt individual students are taking out and the share of students who are borrowing. It is one of several ways to measure student debt amounts and does not capture how much debt the average borrower is taking on annually, or the amount of cumulative debt students have taken on when they leave school.

Past recessions led to rising enrollments, but pattern has differed in wake of COVID-19

One key factor that helps to explain at least part of the spike in total annual federal borrowing following past recessions is rising enrollment: More people attending colleges and universities could mean more people borrowing to finance their education, which in turn could lead to higher overall levels of borrowing from the federal government.

People often enroll in school during economic downturns to build job skills at a time when employment prospects are weak. 7 For example, between 2008 and 2011, the years during and following the 2007-09 recession, undergraduate enrollment grew from 14.5 million to 15.6 million students. 8 The total number of undergraduate student loan borrowers taking out unsubsidized and subsidized federal Stafford loans grew from 6.5 million to 9.4 million, or by 46%, in those same years. 9

In addition to the overall growth in enrollment, changes in the student body and the schools they were attending also may have contributed to increased total and individual borrowing. If student enrollment shifts to more expensive schools, that could increase borrowing levels both for individual students and overall.

For example, during and immediately after the 2007-09 recession, for-profit schools saw a particularly large increase in attendance. 10 Students at these schools have historically borrowed at higher rates and in larger amounts than students at other kinds of institutions. 11 In fact, for-profit colleges are the one sector that saw significant growth at the undergraduate level during the pandemic, with enrollment jumping 6.4% in fall 2020 after several years of decline post-recession, according to the National Student Clearinghouse’s Current Term Enrollment estimates. 12

Given the high levels of borrowing at these schools, rising debt at for-profit schools could offset declines in borrowing that might result from enrollment drops in other sectors. However, enrollment in for-profit schools dropped in spring 2021, and preliminary data from fall 2021 (the current school year) also shows a decline, raising questions about whether the growth in fall 2020 was an anomaly or represented a persistent trend. 13 Overall, undergraduate enrollment trends during the COVID-19 pandemic have differed significantly from past downturns.

For example, data released by the National Student Clearinghouse for fall 2020 shows that total undergraduate enrollment fell from 15.5 million students in fall 2019 to 14.9 million in fall 2020 (3.6%), with a particularly large decline at community colleges. 14 Financial needs and uncertainty related to the pandemic were key barriers to community college enrollment in fall 2020, a survey from the research organization New America suggests. 15 Enrollment data from spring 2021 suggests a similar pattern overall, with undergraduate enrollment declining. 16 Undergraduate enrollment at community colleges again saw the biggest decline, but all other sectors, including for-profit schools, also saw drops. By contrast, graduate enrollment increased across all sectors relative to the previous spring, which could push loan levels upward given high levels of borrowing among graduate students. 17

Preliminary data from fall 2021 suggests that these trends have continued into the current school year, with declines across all sectors at the undergraduate level and overall enrollment increases at the graduate level. 18

Whether these enrollment trends will continue depends on factors such as the level of COVID-19 cases on campus and in communities, prospective students’ financial situations and job prospects, whether institutions are able to sustain in-person instruction, and the availability of child care for student parents. The survey of community college students from New America cited above found that a majority of students who either attended in spring 2020 or considered attending school earlier in the year and didn’t enroll in fall 2020 intended to continue their education at some point, suggesting that community college enrollment could bounce back as the pandemic fades.

College prices surged in past recessions, but thus far the trend has been different in response to COVID-19

A surge in the sticker price of tuition (also known as “published tuition price”) at public institutions following past recessions may be another key reason for post-downturn spikes in student debt. Tuition rises can make it harder for students to pay for school out-of-pocket or with scholarships, increasing the need for borrowing and potentially driving up both individual and overall levels of debt.

More broadly, published tuition, the level of financial aid a student receives, and the amount students need to pay for living expenses such as room and board can all influence the amount a student borrows.

Published tuition at public schools tends to spike during and following recessions

While the published in-state tuition and fees at public institutions (which educate about three-quarters of the nation’s students) have increased consistently over time, they have seen particularly large spikes during and after economic downturns. From 2008 to 2011, published in-state tuition at four-year public institutions rose by $1,390, or 17% in inflation-adjusted terms. 19 For comparison, published tuition has grown by 14% in the entire period between the 2010-11 and 2021-22 school years.

These tuition rate spikes have corresponded with periods of declining state funding, as many states have targeted higher education dollars for cuts to address recession-induced budget shortfalls. 20 Public institutions fund education largely from two sources, state funding and tuition, so when state funding drops, institutions must generally either raise revenue through tuition, cut spending, or perform some combination of those approaches. 21

Although state funding is not the only factor that determines public college prices, a series of recent studies suggests that past funding cuts at the state level have been linked to tuition hikes, in addition to spending reductions and the pursuit of strategies such as increased enrollment of international students, who pay higher prices than in-state students. 22 As with enrollment, tuition trends following the onset of the pandemic have played out differently from past economic downturns.

States have faced widespread financial challenges as a result of the pandemic-driven recession, though the extent of their difficulties has varied widely, and many states have seen their revenues bounce back as the economy has recovered. 23 Confronting these challenges, 20 states reduced higher education funding to institutions by an average of 4.4% (not adjusting for enrollment or inflation) for fiscal year 2021 (which ended on June 30 in most states), according to a report from the State Higher Education Executive Officers Association (SHEEO). 24 This was after federal aid provided in response to the pandemic was taken into account. The SHEEO report adds that these trends in funding cuts “mirror the first year of state funding cuts seen in prior recessionary periods.”

Evidence to date suggests the outlook for state higher education funding is mixed. In their budget proposals for the current fiscal year (fiscal 2022, which began on July 1 in most states), some governors included funding cuts for higher education while others proposed flat spending compared with fiscal 2021, or even suggested increases. 25 These proposals came before the latest federal stimulus package, which provided states, territories, tribes, and localities with $350 billion to address fiscal and other challenges stemming from the COVID-19 pandemic, and an additional $39.5 billion to public and private institutions of higher education to address their own coronavirus-related difficulties; at least half of a school’s federal stimulus money must be provided in the form of emergency grants to students. 26

Most legislatures have now finalized their states’ budgets for the current year. Although analysis about what these decisions mean for higher education funding is limited, early reports suggest that a number of states have increased their support relative to last year. 27 Going forward, the trajectory of the pandemic and economic recovery and their implications for state budgets will play an important role in determining the future course of state funding for higher education.

In the face of these funding patterns, the overall trend in tuition at public institutions has thus far been fairly flat during the pandemic, with in-state tuition and fees at four-year schools, for example, falling by about 2% since the 2020 school year, after adjusting for inflation. 28 Some commentators have noted that the shift to online education, a desire to be responsive to students’ financial circumstances, and state limits on tuition increases may have constrained institutions’ ability to raise tuition since the pandemic began. 29

If the past is any guide, however, states that do have continued state funding declines could see at least some public higher education systems and institutions respond by raising tuition to address their pandemic-driven financial struggles. 30

Grant aid increases in past recessions have helped offset tuition and cost-of-living increases

Beyond published tuition and fees, grant aid (financial aid that doesn’t need to be repaid) and living expenses such as room and board also are key in determining how much students borrow to pay for higher education.

While the 2007-09 recession saw a surge in the sticker price at public colleges and universities, policy decisions to increase grant aid, particularly a major boost in the federal Pell Grant, helped to offset the impact on students. 31 According to data from the College Board, average grant aid from all sources, including federal and state governments and institutions, rose by almost $1,700 at public four-year public institutions, after adjusting for inflation, more than offsetting the rise in tuition at those schools between 2008 and 2011. 32

But students borrow to cover not just tuition and fees, but also living expenses, including room and board. Between 2008 and 2011, the total cost of tuition, fees, and room and board grew by $690, or about 5% on average, even after taking the aforementioned large increases in grant aid into account. 33

Thus far, federal policymakers haven’t made a comparable boost in Pell Grants in response to the COVID-19 recession. For example, in December 2020 the federal government increased the maximum Pell Grant award by $150, the same amount as the prior year’s increase. 34 To put this in context, policymakers increased the Pell Grant maximum award by $619 from 2008 to 2009 in response to the 2007-09 recession through the American Recovery and Reinvestment Act. 35 But the latest framework agreement being negotiated between the Biden administration and Congress for the president’s Build Back Better plan calls for a $550 increase in the maximum Pell Grant and would provide funding to historically Black colleges and universities, tribal colleges and universities, and other minority-serving institutions in part to support financial aid for low-income students. 36

And as noted above, the federal government required that at least half of the COVID-19 stimulus funding provided to higher education institutions go to students in the form of emergency financial aid grants intended to help them weather the impact of the pandemic.

The pandemic leaves many families financially vulnerable, which could affect their ability to pay for college

A third factor that helps to explain why borrowing rises after downturns hit is increased financial hardship. If students’ families lose jobs or incomes, or they themselves have a hard time finding work, they may have less money to pay for school and a greater need for student loans, potentially driving up both individual and total borrowing levels.

The unemployment rate during the pandemic peaked at 14.8% in April 2020, higher than even the unemployment rate at the height of the 2007-09 recession (10.6%). 37 It has since come down sharply to 4.6% in October 2021, but remains above the 3.5% level from just prior to the pandemic. 38 And beyond employment losses, many Americans have seen reductions in pay and work hours. A series of surveys shows large swaths of the country have faced serious hardship, including difficulty paying for basic needs such as housing and food, while many households have withdrawn from savings or retirement accounts to make ends meet. 39 These financial challenges have been particularly prevalent among Black and Latino Americans, women, low-income families, those without a college degree, and adults ages 18 to 29. 40

The economy has shown strong signs of recovery, but this has been tempered by continued uncertainty, particularly as the delta and omicron variants of the coronavirus prolonged the impact of the pandemic. 41 For example, gross domestic product growth (a broad measure of economic growth) slowed in the third quarter (July-September), according to the Bureau of Economic Analysis, reflecting “the continued economic impact of the COVID-19 pandemic.” 42 Even with the economy rebounding, recent evidence raises concerns that many of the Americans hardest hit by the pandemic downturn may be left behind, with lingering employment losses among other challenges. 43

It is also important to note that over the course of the pandemic, the federal government has passed sizable economic stimulus packages intended to promote economic growth and make sure that growth benefits all Americans. 44 Congress included provisions to help higher education students, institutions, and student borrowers as well as low-income families, the unemployed, and the broader economy, but much of that assistance has now come and gone or is scheduled to expire soon. For example, enhanced unemployment insurance benefits expired in September, and a pause on student loan payments is scheduled to expire at the end of January. 45

Such trends could impede the ability of individual students and their families to pay for college and drive up the need for loans, particularly among students most vulnerable to student loan repayment challenges. For example, as noted above, Black Americans have disproportionately felt the adverse economic impacts of the pandemic, and Black students were borrowing and defaulting on their loans at higher rates than their White peers before the COVID-19 pandemic, raising concerns about the role that factors such as labor and housing market discrimination might play in these disparate loan outcomes. 46

Conversely, deteriorating economic circumstances could increase students’ eligibility for need-based financial aid grants, potentially mitigating the need for additional borrowing. But the precise impact of financial changes on aid would depend on a student’s specific circumstances, and some research has raised questions about how well financial aid responds to changes in students’ financial needs. 47 Of particular concern is that financial aid award eligibility is generally based on income and tax information from two years prior, unless a student files an appeal, meaning that students’ financial aid awards may not reflect changes in their financial circumstances resulting from the pandemic. 48 Changes in the FAFSA application form—the form that students and families use to apply for federal assistance for higher education and expanded Pell Grant eligibility—may make it easier for students to qualify for financial aid in the future, though these changes will not fully take effect until the 2024-25 school year. 49

While financial struggles could drive up the need for loans among those who attend college, they could also be keeping students from attending school altogether.

Federal student loan levels both overall and for individual students have risen precipitously over the past several decades. Evidence from past recessions, which have seen spikes in student borrowing from the federal government, suggest that the economic fallout from the pandemic could drive these levels even higher.

So far, the pandemic has affected higher education very differently than past economic downturns in some key ways, and consequently, borrowing from the federal government both overall and on a per-student basis actually fell modestly over the past year. For example, undergraduate enrollment, which tends to rise when the economy is weak, has been trending downward since the pandemic hit; this helps to explain why overall borrowing has declined. Additionally, tuition and fees at public institutions—which tend to spike when recessions hit—have been fairly steady, which may be contributing to the drop in borrowing per student.

The pandemic does share some trends common to past recessions, such as elevated levels of financial hardship, which have the potential to increase the need for individual student borrowing, which, in turn, could push up overall levels of debt.

Overall, student debt levels dropping in the face of the coronavirus pandemic would not necessarily indicate good news for students. Financial circumstances brought on or compounded by COVID-19 may be dissuading potential students from pursuing education that would enhance their job skills and could lead to future higher earning potential. 50

Likewise, a decline in the average amount of borrowing by individual students could mean that students who don’t have the financial means to pay for education on their own simply aren’t enrolling in school. It also doesn’t necessarily indicate that borrowers are struggling any less to pay their loans; in fact, it is often the borrowers with the lowest balances who face the biggest challenges in repayment. 51

Conversely, given the large share of students struggling to pay their loans even before COVID-19 struck, changes in student loan levels as a result of the pandemic could have implications for borrowers’ future financial wellbeing. But while the broad patterns discussed in this analysis are an important starting point, knowing exactly what fluctuations in loan amounts really mean for students’ and borrowers’ well-being will require a closer look.

Another piece in this series focuses more specifically on the connection between recessions and student loan repayment challenges. 52

• College Board, “Trends in Student Aid 2021” (2021), https://research.collegeboard.org/trends/student-aid .
• Private student lending from companies, which makes up a much smaller share of the student loan market, saw a significant contraction after the Great Recession hit as many private lenders tightened their lending standards. The decrease in private lending, along with an increase in limits on federal borrowing around the time of the recession, may have contributed to the surge in federal loans. But even taking this decline in private loans into account, total student borrowing still rose significantly over the same time frame while per student borrowing rose modestly, according to College Board data.
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• Federal Student Aid, “Beginning Phased Implementation of the FAFSA Simplification Act (EA ID: General-21-39),” U.S. Department of Education, accessed Oct. 11, 2021, https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2021-06-11/beginning-phased-implementation-fafsa-simplification-act-ea-id-general-21-39 .
• Fishman and Nguyen, “Where Did All the Students Go?”
• K. Blagg, “Underwater on Student Debt” (Urban Institute, 2018), https://www.urban.org/sites/default/files/publication/98884/underwater_on_student_debt.pdf .
• See “How Will Student Loan Borrowers Fare After the Pandemic?” https://www.pewtrusts.org/en/research-and-analysis/articles/2021/06/28/how-will-student-loan-borrowers-fare-after-the-pandemic .

Students With Default History Foresee Difficulties

With payments on federal student loans set to resume in early 2022 after a COVID-19-related pause, findings from a new survey focused on borrowers’ experiences with default indicate that the restart could be especially hard for one group of vulnerable borrowers: those who have experienced default in the past but had exited it before the start of the pause.

How Will Student Borrowers Fare After the Pandemic?

Policymakers acted swiftly last year to help student loan borrowers after the onset of the COVID-19 pandemic and subsequent economic downturn by pausing most required payments through at least September 2021. Much of the recent student loan policy discussion has focused on short-term issues, such as borrowers’ abilities to make payments during a public health emergency, but what happened after the Great Recession suggests that repayment challenges could linger or accelerate after the pandemic ends.

Economic Downturns: Protecting State and Local Budgets

In particularly challenging times, when revenue is volatile and priorities may need to be reassessed, it is important that lawmakers manage budgets effectively to mitigate fiscal stress.

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