An Analysis of the Student Loan Debt Crisis in the United States: The Causes, the Current Status, and the Future of Indebted Students

Headnote

ABSTRACT

Student loan debt has been accelerating since the Financial Crisis of 2007-09 and has risen to a crisis level of $1.34 trillion as of 2017 QI. The balances of household debt are now larger than credit card or auto-loan debt and second only to mortgage debt. As individual student debt has risen to record levels, delinquency rates have also begun to accelerate. This heavy debt burden varies by the highest degree attained, type of institution attended, parental/student income, race/ethnicity, and other demographic characteristics.

The Financial Crisis weakened the finances and depleted the wealth of many students and their families. As the economy and incomes recovered, financially-challenged states cut their funding for higher education, while concurrently, college expenses climbed. The result was a shift of the financial burden onto students and their families. However, these students and families had diminished financial resources to pay tuition, housing, and fees, and thus, they increasingly resorted to student loans. These factors have led to rising student debt levels, delinquencies, and defaults in debt repayment.

In our study, we examine the causes, the current outcomes, and the future of the indebted students. We will review the macroeconomic consequences of these issues and relevant policies.

Keywords

Student loan debt, higher education, debt inequality, wealth inequality, racial inequality

1INTRODUCTION

On November 8, 1965, President Lyndon Johnson signed the Higher Education Act (HEA) into law as part of his Great Society initiative. The purpose of the law was "to strengthen the educational resources of our colleges and universities and to provide financial assistance for students in postsecondary and higher education" (HEA, Pub.L. 89-329, 1965). The financial assistance under Title IV of the Higher Education Act provided for grants and loans to students of low- and middle-income families.

Over the decades since the enactment of the HEA, the amount borrowed by individual students, as well as the number of students requiring loans to finance their higher education, has grown dramatically resulting in enormous outstanding debt. Unfortunately, the large debt burden falls most heavily on the students from low-income and minority families.

2THE HISTORY

When President Johnson signed the HEA in 1965, the intent was to provide every high school senior with the ability to attend any college or university anywhere, regardless of...