Eight Charts to Guide a Response to the Growing Problem of Student Debt

Since 2007, the balance of federal student loan debt has more than doubled in real terms—from $658 billion to $1.54 trillion. At the same time, the number of loan recipients has grown from 28.3 million to 42.6 million, a 51% increase.

The majority (83%) of outstanding federal student loan debt is lent directly by the federal government. These Direct Loans stand in contrast to Federal Family Educational Loans, which are generally held by banks or other private financial institutions and backed by the federal government, and Perkins Loans, which are subsidized by the federal government but generally held by colleges and limited to borrowers with exceptional financial need. FFEL and Perkins loans have been discontinued, meaning that all new federal student loan issuance takes the form of Direct Loans.

Direct Loans carry the most robust protections for borrowers, including access to multiple income-driven repayment plans and Public Service Loan Forgiveness. These protections have been expanded during COVID-19, as Congress suspended interest accruals and monthly payments on loans held by the federal government until September 30, 2020. Unfortunately, this support was not offered to the more than 8 million FFEL and Perkins Loan borrowers whose loans are owned by private lenders and schools. While some private lenders are offering loan relief, most students with private loans will continue to see their interest accrue.

Despite large increases in total cumulative lending, most borrowers (55%) owe less than $20,000, with 76% owing less than $40,000.

At the other end of the distribution, 7% of borrowers have balances of $100,000 or more and collectively hold 37% of total outstanding debt. These high-balance borrowers tend to have debt from expensive graduate programs. Graduate students often rely more heavily on borrowing because they are ineligible for need-based federal grant aid and are not subject to annual borrowing limits

Student debt varies considerably across sectors. Among those who borrow, average cumulative undergraduate borrowing is unsurprisingly the lowest among students who attended public two-year institutions ($13,304), due to the fact that these programs are shorter in length and tend to be among the most affordable. Average borrowing tends to be higher at for-profit institutions ($23,085), which often have higher prices. Students at for-profit institutions are also the most likely to borrow (82%), compared to private four-year (68%) and public four-year (64%) colleges. At public two-year schools, only 37% of students borrow.

These differences in borrowing can lead to adverse equity impacts. For example, students of color disproportionally enroll in for-profit institutions, many of which fail to provide students with a positive return on their investment.

Among those who take out loans, average cumulative undergraduate borrowing does not differ greatly across income levels. The average borrower in the bottom income quartile borrows $17,401 for undergraduate education, compared to $20,014 in the top quartile. Moreover, borrowing rates are relatively consistent across income quartiles, between 50-60%. The burden of this debt, however, is vastly different across these groups. Among borrowers in the bottom income quartile, average borrowing equates to 225% of their average annual income, compared to 64% among lower-middle income borrowers and 32% among upper-middle income borrowers.

While the Department of Education has temporarily suspended interest and principal payments on most federal loans, the volume of loans either delinquent or in default was already on the rise before this crisis began. This is especially disturbing given the negative long-term impact of default on borrowers’ financial security. Since 2016, the volume of federally managed loans that are more than 31 days delinquent has increased by more than 10%, from nearly $86 billion to over $95 billion, but the cumulative volume of loans in default has increased by 55%, from $108 billion to nearly $168 billion.

When loan payments do resume, rates of delinquency and default are likely to increase even more. These figures are troubling, but they do not even fully capture the landscape of those who are struggling to repay their debt. Borrowers may pursue deferment, forbearance, or an income-driven repayment plan to avoid delinquency or default, though many remain unable to make substantive progress on paying back their loans.

Enduring racial disparities in wealth accumulation and labor market outcomes contribute to disproportionately high rates of default among Black borrowers, regardless of degree completion. Among bachelor’s degree holders, Black borrowers are more than twice as likely to default on their loans than white borrowers.

Default rates are unsurprisingly much higher among those without a degree, with 33% of white borrowers in this group defaulting compared to 55% of Black borrowers. This disparity is especially troubling given longstanding differences in completion rates by race—64% of white students graduate with a bachelor’s degree within six years compared to 40% of Black students.

Five-year repayment rates represent the percentage of borrowers who have reduced their principal balance by at least a dollar within a five-year span. Borrowers who complete their degrees are more likely than non-completers to make progress paying down their principal, a phenomenon attributable to the earnings bump that generally accompanies a college degree. Average repayment rates, however, are lackluster across the board, and have declined over the past several years.

Among borrowers who initially entered repayment in 2011-12, only 67% of completers and 41% of non-completers made progress paying down their loans. These figures represent a decrease from 2007-08, when 72% of completers and 49% of non-completers made a principal reduction within five years. The declines have been attributed, in part, to the increasing number of high-balance, low-earning borrowers enrolled in income-driven repayment plans. While these borrowers remain in good standing, their monthly payments are lower than the accruing interest on their loans. Similarly, borrowers may be in deferment or forbearance and not making payments toward their principal.

Charlotte Houghton contributed to this blog.