The increase in aggregate student debt and the struggles of today’s student loan borrowers can be traced to changes in federal policies intended to broaden access to federal aid and educational opportunities, and which increased enrollment and borrowing in higher-risk circumstances.
Starting in the late 1990s, policymakers weakened regulations that had constrained institutions from enrolling aid-dependent students. This led to rising enrollment of relatively disadvantaged students, but primarily at poor-performing, low-value institutions whose students systematically failed to complete a degree, struggled to repay their loans, defaulted at high rates, and foundered in the job market.
As these new borrowers experienced similarly poor outcomes, their loans piled up, loan performance deteriorated, and with it the finances of the federal program.
Source: NBER study via Tyler Cowen.
The performance of most for-profit colleges has been disgusting, no doubt about it.
However, about 60% of the total student loan debt outstanding is owed by graduate students, medicine and law prominent among them.
The total amount outstanding in federal student loans is about $1.3 trillion. However no one ever expected it to be all paid back in one year.
If the average loan payment is 7% of the balance, and no federal borrower paid anything at all, the government would be out $91 billion a year.
But some borrowers will make payments, so the federal load is not disastrous, at least not fiscally.