CBO The Volume and Repayment of Federal Student Loans: 1995 to 2017

The Congressional Budget Office (CBO) recently published a report that centers on the volume and repayment of federal student loans between 1995 and 2017. Between 1995 and 2017, the balance of outstanding federal student loan debt had increased from $187 billion to $1.4 trillion (in 2017 dollars). The CBO looks at factors that contributed to that borrowing growth including changes to student loan policies. Given that the report focuses on the time period between 1995 and 2017, it does not cover the effects of the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act which was enacted on March 27th, 2020. Highlights of the report are below:

The total amount of student loan debt can be accounted for by trends in the number of borrowers, the average amount each student borrowed, and the rate at which their loans were repaid.

• More people took out student loans over time. In 2017, 8.5 million people borrowed compared to 4.4 million people in 1995.
• Demand for higher education has been cyclical. Enrollment and borrowing both increased sharply during and shortly after the 2007-2009 recession and then decreased afterward; the number of new borrowers peaked at 11.1 million in 2011.
• Among graduate borrowers, the average amount borrowed each year grew by 47 percent, from about $17,400 (in 2017 dollars) in 1995 to $25,700 in 2017.
• For undergraduate borrowers, the average amount borrowed each year grew by 10 percent, from $6,500 to $7,200 over the same period.
• For PLUS loans to parents, the average amount  borrowed each year grew by 79 percent, from $9,300 in 1995 to $16,600 in 2017.

On average, borrowers who attended certain types of schools were more likely to default than borrowers who attended other types of schools.

• The amount of borrowing and the rate of repayment varied with the type of school borrowers attended. Among undergraduates, borrowing for selective schools increased from $19 billion in 1995 to $38 billion in 2017. Borrowing to attend selective schools decreased from 73 percent to 65 percent.
• Undergraduate borrowing to attend for-profit schools increased from $3 billion in 1995 to $9 billion in 2017, from 11 percent to 16 percent of the total disbursements to undergraduate borrowers.
• Borrowing for two-year schools more than doubled, from $2 billion in 1995 to $5 billion in 2017, increasing from 7 percent to 9 percent of total disbursement to undergraduate borrowers.
• Among graduate borrowers, borrowing for all school types increased; the most growth occurred in borrowing for selective schools.
• Relative growth among graduate borrowers was also greatest for those who borrowed to attend for-profit institutions; that borrowing grew from 2 percent of total annual disbursements to graduate students in 1995 to 12 percent in 2017.

Over time, policymakers have changed the limits on how much students can borrow. Borrowers have tended to respond to those limits. Many borrowed the full amount allowed and increased their borrowing in step with limit increases. CBO estimated that the increased borrowing limit was associated with a slightly greater incidence of default.

• For the studied group of borrowers, a $1,000 increase in borrowing led to a 1 percentage-point increase in default.

CBO estimated that a 1 percentage-point increase in interest rates at the time of loan origination was associated with a negligible decrease in the loan amount for undergraduate borrowers.

• For graduate borrowers, whose average loan amount between 2000 and 2017 was about $11,000, a 1 percentage-point increase in interest rates was associated with a $150 decrease in the loan amount. 

Lower monthly payments under Income-driven Repayment (IDR) plans contributed to the growth of debt by slowing the rate at which the loans are paid off. Most borrowers repaying through an IDR plan have loan balances that grow during the years after they enter repayment because the payments are smaller than the interest that accrues on the loan.

• CBO found that borrowers with extended repayment plans were about half as likely to default on their loans or to obtain a deferment for reasons of economic hardship.