April 25, 2025 | Student Debt Problems are Contagious

According to the Education Data Initiative report, the total outstanding debt in US student loans (federal and private) is a record $1.77 trillion for more than 42 million borrowers.

The average debt of a federal student loan borrower is about $37,853, with those aged 50 to 61 having the highest average debt at $46,790.  Debt levels vary by degree: Bachelor’s degree holders owe $29,300, while graduate students average $66,000. Law school graduates face an average debt of $132,740, and medical school graduates average $296,500.

In 2020, President Trump temporarily paused federal student loan payments and interest accrual as a relief measure for student borrowers. The Biden administration extended the pause in payments multiple times through 2023, and a final grace period for loan repayments ended in October 2024. That meant tens of millions of Americans were to start making payments again.

Department of Education officials say less than 40% of all borrowers are current on their student loans.

Those who don’t make payments for nine months go into default, which is reported on their credit scores and can lead to collections. Currently, some 5.3 million borrowers are in default on their federal loans, and another 4 million are 91 to 180 days late on their payments.

Student loans are rarely discharged in bankruptcy, so outstanding balances weigh on borrowers’ spending and saving ability for years. This matters for individuals and the economy as a whole.  A lengthy extend-and-pretend period for student loans has come to a painful end.

Starting May 5, the US Department of Education will move roughly 1.8 million student borrowers into repayment plans and restart collections of loans in default. Borrowers who don’t make payments on time will see their credit scores go down, and in some cases, their wages will be automatically garnished.

Student loans have been a mess for a long time, and a clean-up is much needed. But schools are also part of the problem and must share in the payback period. The new US Minister of Education put it this way:

But I have another hard truth for the institutions that made empty promises to students while pocketing their loan dollars.

Colleges and universities call themselves nonprofits, but for years they have profited massively off the federal subsidy of loans, hiking tuition and piling up multibillion-dollar endowments while students graduate with six-figure debt. A widely cited 2015 study found that for every dollar of increased federal caps on subsidized loans, colleges raised tuition by 60 cents.

Many of the degree-granting programs that qualify for student loans are worthless on the job market, but colleges continue to accept students to these programs and encourage them to borrow to pay for them. Accountability is a two-way street. As we push to hold student borrowers to account, we will also push colleges to be responsible and transparent.

Danielle Park April 25th, 2025

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