Higher Education Student Loan Debt
Summary
Student loans play a crucial role in ensuring access to affordable higher education for millions of Americans. The cumulative amount borrowed for federal and non-federal student loans has increased steadily since data has been recorded until the Great Recession, when we started to see a decline. This paper examines who borrows and how much, who retains debt after higher education, and who repays or defaults, all of which often vary by institutional sector and demographics.
A Brief History of Federal Student Loans
The precursor to today’s federal student loan program started under the Higher Education Act of 1965’s Guaranteed Student Loan program, also known as the Federal Family Education Loan (FFEL) program. Under the FFEL program, ED encouraged private lenders to participate in the program by offering subsidies to those who participated. In addition to these subsidies, the government guaranteed that lenders would be compensated for a portion of their losses if a borrower defaulted. In 1993, Congress implemented the Direct Loan program, which allows students and their families to borrow directly from the federal government through ED with U.S. Treasury funds. With no lender subsidies to pay, this program reduced the government’s cost of making a student loan.
For nearly 20 years, the Direct Loan and FFEL programs coexisted, with schools selecting which program to participate in and borrowers receiving nearly identical loan terms that were set in statute. In 2008, largely due to the credit crisis, several private lenders no longer found it feasible to participate in the FFEL program. To ensure the stability of the student loan market, ED offered to repurchase FFEL program loans from private lenders and absorb these loans into the Direct Loan program as part of the Ensuring Continued Access to Student Loans Act (ECASLA). These repurchased loans are referred to as “Department-held FFEL.” In 2010, the Student Aid and Fiscal Responsibility Act (SAFRA) halted the availability of new FFEL program loans and mandated a complete switch to direct lending by June 30, 2010. By June 2021, remaining FFEL program loans represented only 15% ($234.1 billion) of the $1.6 trillion in outstanding federal student loans. The remaining loan volume consisted of almost all Direct Loans ($1.35 trillion).
