Washington, DC – Today, the Bipartisan Policy Center released an in-depth examination of the federal student debt challenge and a menu of current policy proposals aimed to limit impacts on borrowers and taxpayers. This report, Student Debt and the Federal Budget: Federal Student Loans’ Impact on the U.S. Fiscal Outlook, analyzes the key drivers of growing student loan debt and the associated federal budget implications.
“The student loan system is saddling millions of students and families with debt that harms their long-term financial security and well-being,” said Kevin Miller, BPC associate director of higher education. “And when borrowers cannot repay their loans, the federal government and taxpayers foot the bill. We need reforms to protect students as well as taxpayers from the negative consequences of excessive student debt.”
Outstanding federal student loan debt has ballooned since the Great Recession, increasing by 144% since 2007. Students have had to borrow more in response to the rising cost of college attendance. Between 2006 and 2020, tuition and fees at public four-year universities rose by 42%. BPC identifies the following as causes of the student loan debt surge:
- Declining state support for higher education increases public college costs
- Increased access to federal student loans allows institutions to raise tuition prices without declines in enrollment
- Uncapped PLUS Loan lending and excessive loan forgiveness create incentives for greater borrowing
- Weak accountability metrics allow poor-quality institutions to continue receiving federal student aid despite their students’ inability to repay loans, leaving taxpayers to foot the bill
The costs of the swelling federal student loan portfolio are highly debated, but analysis suggests that the program’s long-term budgetary impacts are negative and growing. The risks of the student loan portfolio to the federal budget will continue to grow without substantial policy changes.
BPC highlights several policy options for reducing reliance on the federal student loan system and alleviating taxpayer exposure, including:
- Facilitate automatic enrollment in a simplified and more progressive IDR plan
- Expand Pell Grants to improve outcomes and reduce borrowing
- Promote accountability through institutional risk sharing
- Broaden the metrics used to evaluate student loan outcomes
America’s higher education financing system is in urgent need of reform. As the amount of federal student debt increases, so does taxpayer exposure. If the system’s challenges are not addressed, current trends will leave taxpayers footing the bill for hundreds of billions of dollars in costs. The student debt challenge must be tackled with borrowers as well as taxpayers in mind. Common-sense policy reforms can curb the unsustainable growth of student debt and improve borrower outcomes.
Download the full report here.
For questions, or to speak with Kevin Miller, contact Senior Manager of Media Relations Kyle Fischer.