Student debt in the United States has grown tremendously throughout recent decades. After adjusting for inflation, federal student debt increased sevenfold from 1995 to 2017, rising from $187 billion to $1.4 trillion. That growth was driven by a range of factors, including an increase in the number of borrowers, a higher average amount borrowed, a low rate of repayment, and changes in the types of colleges attended.
That sharp rise in student debt has sparked debate among policymakers on whether, and how, to address it. On one hand, incurring student debt can help improve access https://www.worldpaydayloans.com/payday-loans-nc/tarboro/ to higher education, which can lead to a number of economic benefits for those who graduate. On the other hand, excessive levels of student debt may impose a financial burden on some households and sectors of the economy.
Below is an examination of the factors driving the growth in student debt and its implications. Data presented focuses on federal loans, which account for 92 percent of all outstanding student debt.
More Students are Going to College and Taking Out Loans
Put simply, one of the reasons that student debt has been growing is because the number of people taking out such loans has been rising. In 2017, 8.6 million Americans took out a federal student loan – more than double the 4.1 million borrowers in 1995. Such growth is partially attributed to an increase in the number of students enrolled in college, which rose by 36 percent over that period, according to the Congressional Budget Office (CBO).
The number of students enrolled in, and borrowing for, college grew due to a number of demographic and economic factors. For one, the economic benefits of higher education, such as higher earnings and lower rates of unemployment compared to those without a college degree, and a growth in the U.S. population increased the demand for such degrees. The state of the economy also had an effect on enrollment trends. For example, the number of borrowers increased during and shortly after the 20072009 recession due to lower economic growth and fewer employment opportunities at that time, which may have caused some high school graduates who normally would have entered the workforce after graduating to attend college instead.
The Average Amount Students are Borrowing is Rising
Another factor contributing to the growth in student debt is the average amount borrowed each year, which grew by 35 percent from 1995 to 2017, even after accounting for inflation. Much of that increase was driven by rising tuition prices. Between 1995 and 2017, according to the College Board, the average tuition price (adjusted for inflation) grew by 120 percent at public four-year undergraduate institutions and by 76 percent at nonprofit four-year schools. Those increases in tuition prices put upward pressures on borrowing and led to higher levels of student debt.
A variety of factors have driven tuition prices up over time. Across public and private institutions alike, the rising cost of staff and higher education services, an increased demand for a college degree, and an expansion of the federal student loan program (which made student loans more accessible) contributed to rising tuition prices. In addition to those factors, prices at public colleges also rose due to a decline in funding from state and local governments. For example, balanced budget requirements caused governments to cut funding to higher education institutions (among other programs) during the Great Recession – leading the schools to raise tuition prices to make up for that lost revenue. From the 20072008 academic year to the 20082009 year, state and local funding per student decreased by 10 percent and continued declining for the next three years while tuition prices soared over that same period (as funding increased in the following years, the rate of growth in tuition slowed).